Trends in commercial real estate lending, which has reached record levels at U.S. banks, are unsustainable, Fitch Ratings warned.

The agency said in a press release Monday that CRE loans have risen at a nearly 4% compound annual growth rate over the last five years. Multifamily lending increased at a 10.7% clip over those years, while areas such as hotel, industrial, retail and office lending has slowed.

Balances on construction loans, which experienced the highest loss severity during the financial crisis and would likely do so again during the next downturn, have declined in the last five years, Fitch said.

Fitch, however, said it believes banks have tightened lending standards for construction, reflecting lessons learned from the crisis and subsequent regulations that require lenders to hold more capital against loans to highly leveraged projects.

Small and midsize banks have the largest CRE exposure, the report said. All of the banks where CRE exceeds more than 300% of risk-based capital have less than $50 billion in assets, and most have less than $10 billion in assets.

"Not all small, CRE-concentrated banks are necessarily at risk," the report said. "The resilient institutions were more selective in their underwriting and reported modest growth into the most recent downturn, or lent against rent-regulated multifamily buildings."

Fitch said that $205 billion in maturing loans from commercial mortgage-backed securities conduits originated in 2006 and 2007 create the potential for further CRE loans growth through next year. "Given the soft CMBS market and the imminent introduction of rules that require issuers to retain a 5% stake in the CMBS transactions…we expect banks, insurers and other market participants to refinance many of these loans."

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