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RCA Inventories CRE Recovery Rates Across U.S.
The recovery rate for the U.S. CRE sector and markets following the Global Financial Crisis are proceeding at varying paces. Research by Real Capital Analytics (RCA) shows that while the country has turned the corner on the worst losses on loans originated before the downturn, the best recovery in value from defaulted loans in the markets and property types occurred where the RCA CPPI has staged the strongest growth.
The recovery rate, as defined by RCA, is simply the ratio of the amount obtained for the sale of an asset in a distressed situation, relative to the troubled loan amount.
RCA’s CRE economist Jim Costello took a look at a data set on distressed assets that it last maintained in the aftermath of the financial crisis. He writes that while there are still fewer distressed situations today, the outcomes for these transactions merit attention.
Not surprisingly, perhaps, the apartment sector is the star performer with recovery rates at 91% in 2018. That means lenders nationally are only losing 9% of their outstanding balances on apartment loans when a default occurs, says Costello.
He points out “bank lenders have been outperforming all other lender groups with respect to recovery into 2018. This outperformance is not a function of exposure to the apartment sector.”
Agency lenders tend to dominate lending in the apartment sector. The distressed loans by bank lenders were focused on the industrial and retail sectors.
The retail sector was at the bottom of the pack, with recovery rates only at 66% in 2018. Bank lenders recovered 80% of value on distressed retail loans in 2018.
“There is a clear correlation between price growth and recovery rates,” writes Costello. “The markets and sectors which have posted the strongest improvement in property prices over the last five years were generally those that had the best recovery of value at default.”
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- ◦Sale/Acquisition
