In the U.S., there are currently 7,881 FDIC insured institutions. Only a minority of these banks have ever made a commercial real estate loan. Thus a small minority of FDIC insured institutions currently possess the majority of the distressed commercial debt.

A Congressional Oversight Panel report dated February 10, 2010, states that between 2010 and 2014 approximately $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are “underwater” – that is, the borrower owes more than the underlying property is currently worth.

The following statistics, compiled by Brecht Palumbo of distressedpro, provide an indication as to the current status of the distressed commercial debt situation nationwide:

  • · 50 Banks hold approximately 40% of all Commercial REO held at U.S. banks.
  • · In 2009, 140 banks failed.
  • · As of April 24, 2010, 57 banks had been closed by the FDIC and the office of the comptroller of the currency. At the same time in April 2009, 29 banks were closed.
  • · Delinquent commercial real estate loans at U.S. banks increased by 10.6% in the first quarter of 2010, over the fourth quarter of 2009.
  • · Nonperforming construction and REO loans totaled just over $74.1 billion in the first quarter 2010.

 

With delinquent commercial loans increasing at a significant pace, banks have been transforming commissioned commercial loan officers into salaried workout employees. Many banks are understaffed  and are struggling to refinance mortgages for creditworthy borrowers, while at the same time trying to avoid significant write-downs.

For borrowers that do not have adequate operating income to service their debt loads, creative financing techniques can involve the infusion of new capital sources to deleverage these assets. Successful restructuring of debt is often a complex challenge that requires multidisciplinary expertise. We’ve been finding that banks are now moving very quickly to either develop this expertise in-house, or to outsource much of the workout responsibilities.

-Jonathan Fischer, MAI

Jonathan Fischer, MAI, is a Managing Director in NAI Global’s New York City office and works with investors and financial institutions as a member of NAI’s Special Asset Solutions group.