Bloodcurdling numbers of distressed residential mortgage assets are bad enough. But nonperforming commercial mortgages have also ballooned out, to more than $200 billion of a niche that is only one-third the size of residential.
Matthew Anderson, managing director, Trepp LLC, told the SourceMedia Buying and Selling Distressed Mortgage Portfolios Forum held in New York recently that commercial banks currently have $152.8 billion in commercial NPLs. That’s nearly 10% of a total of $1.58 trillion in CRE.
Construction lending is the biggest factor in the commercial NPLs, Anderson told the meeting. Currently $71.8 billion of these bank assets are nonperforming. Commercial loan nonperformers are second, at $68.5 billion, with multifamily trailing at $12.4 billion.
In addition, some $60 billion of commercial mortgage-backed security loans are troubled, Anderson said, with concentrations in the office, retail and lodging sectors.
Anderson also pointed out that half of the CRE debt maturing in the next five years is under water in equity or about to be. Lodging has been the hardest hit, at 20% delinquencies, he said.
In addition to the current problem CRE at banks, there is the potential for a lot more. Anderson noted that the Federal Deposit Insurance Corp. currently has 888 banks on its problem list. Trepp’s own analysis of troubled banks is slightly more optimistic than FDIC but not by much—it has 700 banks on its watch list.
Since 2007, 370 banks have failed, Anderson said, with the highest concentrations in the West and Southeast (the Northeast and Texas have fared much better). In one positive sign, though, Anderson said the pace of bank failures has tapered off recently.
The distressed asset market, both residential and commercial, has been slow to develop despite enormous inventories of product. Anderson said 2010 saw a pickup in sales, but that the first quarter of this year has been another lull.
What is selling? On the commercial side, mezzanine debt is popular, said Jere Lucey, managing director of Jones Lang LaSalle, New York, while land has been difficult to sell.
Lucey’s firm sold $4 billion in private-label NPLs last year, and so far this year has registered $1 billion in note sales through 27 transactions.
Jeff McCoy, manager of the loan disposition effort at BB&T, told the meeting his bank has sold $1.5 billion in CRE nonperformers, bringing its total portfolio down to less than $500 million. He noted a gap between bid and ask prices that has kept the market from booming, and said that “one off” and small portfolio deals have been the ones that were successfully disposed of at his shop.
