Fewer real estate loans are foreclosed or restructured

Real Estate Weekly, Oct 20, 1993

After rising without interruption since 1986, the dollar volume of real estate loans restructured by commercial banks fell 19 percent in the first quarter of 1993 to $2.5 billion, from $3.1 billion in the fourth quarter of 1992, according to analysis by Coopers & Lybrand.

The firm found that fewer loans are being foreclosed or restructured, after analyzing lending data provided by the Federal Deposit Insurance Corporation, the Department of Housing and Urban Development, and the American Council of Life Insurance (ACLI). Commercial bank real estate other than loans fell to $25.7 billion, down 7 percent since its peak in 1991. Among life insurance companies, loans in good standing with restructured terms continued to rise in the first quarter of 1993 to 7.6 percent of loans outstanding, while loans in the process of foreclosure fell to 3 percent of loans outstanding, the third consecutive quarter of decline.

Nearly one quarter of all commercial real estate loans made in the late 1980s were restructured or foreclosed, according to Coopers & Lybrand. Of the estimated $1.3 trillion in commercial and multi-family real estate loans made between 1984 and 1990, 23.5 percent were restructured or foreclosed. Foreclosures approximate $170 billion, while $132 billion in loans were restructured.

Mixed-use and hotel loans were the most troubled, while industrial and apartment loans were the strongest loan types, Coopers & Lybrand found.

"Lower interest rates on floating loans have helped to slow the need to restructure or foreclose on troubled properties," says Patrick Leardo, director of Coopers & Lybrand's Real Estate Restructuring and Bankruptcy Services Group. "While this may be only a short term solution, we are at least breathing a little easier."

Commercial banks and life insurance companies originated the bulk of foreclosed or restructured loans: 55.3 percent and 13.6 percent respectively, for a total of 69 percent. The estimate for banks is derived by applying ACLI restructuring percentages to FDIC bank data. These figures may be conservative because commercial banks made relatively more construction loans than life insurance companies: these loans tend to be riskier than long-term mortgages. In 1992, 27.6 percent of banks' outstanding real estate loans were construction loans