The state of U.S. commercial real estate financing, rocked by high interest rates and property valuation uncertainty, may become clearer as banks release second-quarter performance reports in coming weeks.
Results from the first quarter already serve as a sign of caution. Banks showed a sharp drop in commercial real estate loan growth to the lowest level in at least five years at just 0.4% in the first three months of the year, according to data from the Federal Deposit Insurance Corp. Activity in the multifamily sector was strong, however, with loans up 5.2% in that time.
Meanwhile, delinquencies among all types of commercial real estate rose 19% in the first few months of the year, the second consecutive quarter with a gain after declines in six of the previous seven quarters.
Multifamily loan delinquency increased 22.4% in the first quarter from the fourth quarter and now stands at its second-highest level in the past five years. FDIC second-quarter data is expected in mid-August.
While delinquency rates remain low by historical standards and are less than the peak during the pandemic, when 1.15% of commercial real estate loans were past due, conditions that led to the increase have not subsided.