Delinquencies on commercial real estate loans rise sharply in Q4

Delinquencies on commercial real estate loans at U.S. banks increased sharply in Q4 from the earlier quarter, amid a tough macroeconomic backdrop, declining occupancy rates and tightening of lending standards.

Loans overdue for over 30 days and those in nonaccrual status accounted for 0.65% of CRE loans at the end of Q4, up from 0.58% delinquency rate as of Sept. 30, 2022, an S&P Global Market Intelligence analysis showed.

However, despite the sequential uptick in delinquencies in Q4, the CRE loan delinquency rate was down 6 bps Y/Y.

In its last meeting, the Federal Reserve raised concerns over the CRE space given higher interest rates, including high valuations in commercial property markets.

In addition, banks tightened lending standards on commercial and industrial loans as well as commercial real estate loans over Q3 and Q4, according to the Fed's monetary policy report.

S&P's Intelligence unit found that the number of U.S. banks exceeding regulatory guidance on CRE loan concentration in Q4 climbed to 567 as of Dec. 31, 2022, from 539 at the end of Q3 and 421 in Q4 2021. This marks the seventh straight quarterly increase.

Trustmark National Bank, a unit of Trustmark (TRMK), is the latest large U.S. bank to exceed CRE guidance, with its construction and development loan concentration at 106% as of Dec. 31, 2022.

Meanwhile, Wells Fargo downgraded commercial mortgage-backed securities from favorable to neutral as the developing slowdown should present a risk for commercial leased space. "However, light issuance in CMBS through H1 of 2023 should support a neutral rating."

Related tickers include: Starwood Property Trust (STWD), Blackstone Mortgage Trust (BXMT), BrightSpire Capital (BRSP), ACRES Commercial Realty (ACR), Lument Finance Trust (LFT), Ladder Capital (LADR) among others.

Earlier, Blackstone (BX) defaulted on part of a bond backed by a commercial portfolio in Finland.