U.S. banks are continuing to meet the rising demand for commercial real estate lending in key markets, according to a new report from the CoStar Group. Total commercial real estate loans issued by all FDIC-insured commercial banks and savings institutions reached $1.75 trillion in June 2015, a 7.1% increase from a year ago. In comparison, commercial real estate lending stood at $1.63 million in June 2007 at the peak of the commercial real estate markets.
The biggest hike came in construction and development loans which soared to $256 billion, up $33 billion or 15% form a year ago. Multifamily loan balances rose 11.8% over the past 12 months, reaching $315 billion by the end of second quarter 2015, according to the FDIC. The biggest segment of commercial real estate loans came in other non-farm non-residential property loans, which totaled $688 billion end the end of the second quarter, up 6% year over year.
One area that did not follow the trend was in the segment for loans totaling $1 million or less for small businesses backed by nonfarm, nonresidential properties. Small business lending in this area was down 1.6% in the past year, or 30,284 fewer loans.
While banks continued to back more commercial real estate loans, the asset quality of the commercial real estate loans continued to improve. Net commercial real estate loan losses dropped over the past year for the 20th consecutive quarter. In the first half of the year, banks charged off only $1.2 billion in commercial real estate loans, a decline of 31% year over year.
Delinquent commercial real estate loan balances at U.S. banks declined for the 21st consecutive quarter at the end of the second quarter, reaching $22.35 billion, a drop of 30% in the past 12 months. Banks held $10.4 billion in foreclosed commercial real estate properties at the end of June, a decline of 26% year over year. Half of that total dollar volume consisted of foreclosed construction and development properties.
Bank profits also continued to climb in the second quarter, with a reported aggregate net income of $43 billion, an increase of $2.9 billion or 7.3% from the second quarter 2014, the FDIC noted. It was the highest quarterly income ever recorded.
Overall, bankers reported higher profits, improved asset quality and increased lending in the second quarter, the FDIC reported. Nearly 60% said quarterly net income grew, while less than 6% saw a net loss. The number of banks categorized as problem banks fell in the second quarter 2015 from 253 to 228, the lowest number in seven year and a stark drop from the high of 888 in first quarter 2011. Only one bank failed in the quarter.
Despite this improved environment, the FDIC noted that low interest rates remain a challenge to the banking industry.
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