Commercial real estate lending by U.S. banks slowed again in the third quarter while the number of delinquent loans increased.
The results come as weak demand for office space softened property values, and with high interest rates over the past few years affecting borrowers' ability to repay debt, according to the Federal Deposit Insurance Corp. The financial industry is currently at the intersection of falling borrowing costs and improving outlooks by some analysts' forecasts, giving real estate investors some hope for a lending rebound next year.
The amount of commercial property loans on bank books increased 0.3% quarter to quarter, according to FDIC data. The results were driven by a 1.1% decline in construction and development loans.
Loans for nonfarm, nonresidential commercial real estate properties were basically stagnant, increasing by 0.1%. The bank category includes nonowner-occupied office, industrial and retail properties.
The delinquencies of banks' commercial real estate loans moved up 6% on a quarter-to-quarter basis to $41.77 billion, or 1.45% of the total outstanding commercial real estate loan balance, according to the FDIC.
The past-due and nonaccrual ratio for nonowner-occupied commercial real estate loans accounted for the biggest percentage of all loans, at 2.07% — the highest level since the fourth quarter of 2013, the FDIC said. The movement on this type of debt that faces repayment challenges is driven by office portfolios at major banks.
Bank multifamily lending ticked up 0.8%, which was on par with what FDIC numbers showed over the past six quarters.
The bank results come as other lending sources have seen increases in loan holdings. That available financing helps commercial property borrowers make up the difference where traditional bank lending lags.
Life insurance companies saw the largest monetary gains in their holdings of commercial and multifamily mortgage debt — an increase of $21.2 billion, or 2.9%, according to the Mortgage Bankers Association industry trade group.
Meanwhile, government housing finance firms Freddie Mac and Fannie Mae increased their holdings by $12.3 billion, or 1.2%, and commercial mortgage-backed securities loan originators increased their holdings by $9.6 billion, or 1.6%.