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Bank CRE Default Rate Falls
Tucker, Michael
The default rate across commercial and multifamily loans held by banks fell to 3.45 percent in the first quarter, the lowest since 2009, reported Chandan Economics, New York.

The apartment default rate fell 17 basis points quarter-over-quarter to 2.36 percent, its lowest level since the end of 2008. The default rate for commercial property showed less of a decline than for apartments, falling to 3.67 percent, a 9-basis-point drop from the previous quarter and down 64 basis points from a year earlier.

"The faster decline in the apartment default rate reflects the sector’s improving cash flow fundamentals and the broader availability of debt for acquisitions and refinancing of maturing loans, through banks, life companies, and the sector’s dominant agency financing channels," said Sam Chandan, CEO of Chandan Economics.

Chandan said the multifamily default rate peaked at 4.71 percent compared to a 4.35 percent default rate peak for commercial properties, but the comparison now favors apartments: "As of the first quarter, the apartment default rate was 131 basis points lower than for commercial properties. The overall decline in the default rate reflects a relatively larger improvement in legacy apartment loan performance."

New multifamily lending increased by $2.4 billion in the first quarter, Chandan said, while net commercial property lending fell by $3.1 billion.

"Absent significant policy or economic shocks or a sharp rise in risk-free interest rates, the analysis of the most recent bank-level data suggests continued improvements in both legacy loan performance and new bank lending over the coming quarters. This is an encouraging trend given financing challenges for non-core commercial properties and properties in smaller markets and the uncertain near- and medium-term outlook for new CMBS issuance," said Chandan. But, he added, "In the apartment sector, interest rate risk management warrants greater attention."