Real Estate Loans a Concern for Some Banks

Real estate investors aren’t the only ones concerned about a possible wave of commercial mortgage defaults.

Banks with large percentages of real estate loans are under pressure from regulators to raise money and curb exposure to risky areas of commercial real estate, according to analysts.

“This is a ticking time bomb,” said Gary Findley, an Anaheim-based banking consultant. “We have a lot of local Banks that are hugely leveraged with commercial real estate loans.”

During the last decade, many local Banks relied on commercial real estate lending as their main profit driver, according to Findley.

“So even if a relatively minor portion of their loans starts having difficulty, it could amount to some significant losses,” he said.

Nationally, $1.4 trillion in commercial mortgages are coming due by 2014. A report by Deutsche Bank AG estimates that 65% of those loans could have trouble refinancing and could default.

In Orange County, nearly $2.7 billion worth of commercial real estate mortgages sold as bonds are expected to come due by 2015 (see story, page 1).

“Commercial real estate is going to be a challenging issue for community bankers in Orange County at least through 2010,” said Ken Cosgrove, chief executive of Anaheim-based Premier Commercial Bank.

A key figure checked by regulators is how much commercial real estate loans a lender has compared to its total capital on a risk-adjusted basis.

Regulators recommend that ratios measuring real estate loans versus total capital don’t exceed 300%.

Of 27 homegrown banks and savings and loans, a dozen are above that percentage based on the latest Federal Deposit Insurance Corp. data from the fourth quarter, according to San Francisco-based investment bank Stone