March 1, 2012 / 12:01 AM / 8 years ago

Banks step up commercial property lending

(Reuters) - U.S. banks increased lending for commercial real estate and apartment buildings for the first time in nearly two years in the fourth quarter of 2011, another sign of confidence in the improving U.S. economy.

Banks expanded their loans for apartment buildings and commercial real by $5 billion in the fourth quarter, with the bigger, healthier banks leading the way, according to a report released on Wednesday by Chandan Economics, which tracks real estate bank lending. It was the first expansion of commercial real estate loans since the first quarter 2010, the report said.

The report is the result of mining data from the Federal Deposit Insurance Corp, which on Tuesday said bank loan balances overall rose $130.1 billion, or 1.8 percent, in the fourth quarter from the third.

That prompted Martin Gruenberg, acting FDIC chairman, to say the U.S. banking industry’s recovery has progressed to the point where the banks are in the position to boost the overall economy by extending more loans.

In yet another sign of economic improvement, the U.S. Commerce Department on Wednesday revised growth of fourth-quarter gross domestic product up to a 3 percent annual rate, from 2.8 percent it reported in January.

Banks are the greatest source of lending for commercial real estate, which depends on large loans to finance the acquisition of properties, such as office buildings, shopping malls and warehouses, and to refinance maturing loans. Soon after the credit crunch hit crisis mode in late 2008, many believed that the commercial real estate sector would follow the bust of the housing sector.

But regulators allowed the banks, which were in no shape to take the hit of large write-downs on defaulted maturing loans, to extend loan maturities. This gave the banks time to shore up their own finances and allowed commercial real estate values to rise from basement levels.

Now the healthier banks have returned to lending. Wells Fargo & Co (WFC.N), Bank of America Corp (BAC.N), U.S. Bankcorp (USB.N) and JPMorgan Chase & Co (JPM.N) had the largest holdings of commercial real estate loans in the fourth quarter of 2011.

“In many ways you could consider us under-invested,” Doug Petno, chief executive of JPMorgan Chase’s commercial banking business and a member of the company’s operating and executive committees, said Tuesday at an investors conference.

JPMorgan Chase, which was number 15 just a year earlier, had the largest holdings of multifamily loans at the end of the quarter, followed by New York Community Bancorp Inc NYB.N and Wells Fargo, the report said.

Other banks are still contending with high default rates on existing loans but even those default rates are improving.

The default rate for existing commercial loans fell to 3.76 percent, its lowest level since the third quarter 2009 and the default rate for multifamily loans fell to 2.53 percent, the lowest level since the first quarter 2009, the report said.

Despite the improvement, there remains a long way to go. There was $67.6 billion in distressed commercial real estate and multifamily loans in the domestic banking system as of the fourth quarter. Add construction loans, and that total exceeded more than $100 billion.

Moreover, there is still more than $1 trillion of mortgages maturing over the next several years.

Reporting By Ilaina Jonas; Additional reporting by David Henry; Editing by Steve Orlofsky

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