CRE Loan Prices Regaining Pre-Recession Values

Posted on February 22, 2012

The aggregate value of bank and CMBS real estate loans sold last year rebounded to levels not seen since 2008.

Whole real estate loans both commercial and residential offered by the Federal Deposit Insurance Corp. (FDIC) last year sold at 84% of their book value compared to 34% in 2010 and 72% in 2008.

What’s more, performing commercial real estate (CRE) loans the FDIC sold last year went for 91% of book value. Performing residential loans in 2011 also went for about 91% of their book value.

The FDIC also pools sub- and nonperforming real estate loans from failed banking institutions and sells them through structured transactions. In these cases, the winning bidder purchases a portion, typically ranging from 20-40%, of the equity in the mortgage pool. To date all such transactions have included some form of FDIC financing.

Typically, these deals include a number of construction and development loans and hence tend to have lower valuations.

The implied value on the winning structured loan bids in 2011 held steady at an average in the low 40% range to book value. The average value of these types of transactions in 2008 and 2009 were in the low to mid 30s.

Some of the most active buyers of FDIC loans last year included Colony Capital Advisors and Oak Tree Capital, which each purchased structured interests in $1.78 billion of sub- and nonperforming residential and CRE loans in FDIC-financed transactions.

Kansas City, MO-based Bank Midwest was the largest buyer of FDIC-sold whole real estate loans. Bank Midwest acquired $174 million of loans, 75% of which were CRE loans.

In total, the FDIC sold $3.1 billion in real estate loans in 2011. In 2010, FDCI real estate loan sales totaled $12.7 billion.

CMBS loans priced by online debt trader DebtX also climbed to 86.1% as of Dec. 31 from
85.2% as of Nov. 30, 2011. Loan values were 79.4% as of Dec. 31, 2010.

“CRE loan prices in December rose to their highest level in more than two years,” said DebtX CEO Kingsley Greenland. “The price increases are the result of a decline in treasury yields, a decrease in credit spreads and improving CRE fundamentals.”

In December, DebtX priced 51,895 CRE loans with a $621.5 billion aggregate principal balance.

By Mark Heschmeyer, Costar Group