Few overdue loans become current as the economy recovers

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The post-COVID economic recovery does help CRE as a whole, but instead of updating expired properties, it is holding back even more disasters.

A new analysis by Moody’s Analytics REIS notes that the pandemic “has exposed weak assets, accelerating their deterioration,” especially when it comes to old malls in slow-growing areas and residential areas intended for business travel.

Despite this, “lenders and borrowers seem to be more inclined to provide a path to survival in this sector,” write Moody’s David Salz and Thomas LaSalvia. “Training, modification / abstinence, and even relevance were more evident in the housing industry than in retail. For the borrower, being able to repay the loan and keep the property seems like a good step in a strengthening / growing market. “

The bucket of over 121 days in arrears that began in July contained about $ 16 billion in loans, and more than three-quarters were in the retail or residential sectors. About $ 1.2 billion went out of this category, with more than half of that coming from modification or abstinence.

“While the number of modifications has generally slowed down over the past few months, they remain a powerful tool in reducing serious offenses,” Salz and LaSalvia note. “It is interesting to note that a small amount of loans is becoming relevant, especially in light of a robust economy … the current economy certainly keeps some borrowers from being seriously delinquent; however, even though loans fall out of the 121+ delinquency bucket, there are monthly top-ups. In July, $ 1.07 billion was added, of which 24% came from the housing sector and 51% from the retail sector. “

They note that at this point, distressed assets are likely operating in an environment of “general weakness in the changing commercial real estate environment.”

“Retail is growing and a robust economy cannot help bring all these loans back into circulation,” say Salz and LaSalvia. “In terms of accommodation, many of the hotels that are still struggling will remain so until business and international travel joins the resurgence of travel.”

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