Non-Performing Real Estate Loans Decline

New England -- New England commercial banks report that non-performing loans (NPL) of real estate have declined to 1.78% of all loans from a 1990 high of 9.79%. Moreover, NPLs in the commercial real estate category have fallen to about 3.0% from 1990 record highs estimated above 10%.

Since the early 1990s, the percentage of NPLs has been reduced consistently each year. The accompanying chart shows the trend for NPLs with respect to commercial real estate in New England as reported in New England Banking Trends, a publication by the Federal Reserve Bank of Boston.

[NPL Chart]

FDIC: Survey of Real Estate Trends

In another survey among banking/real estate industry personnel, the Federal Deposit Insurance Company (FDIC) in their publication: FDIC: Survey of Real Estate Trends reports that in the Northeast region beginning in January 1993, nearly all survey respondents (96%) saw an excess supply of commercial real estate properties. The January 1996 survey reports, however, that only about half of the respondents see any excess supply now. This long-term improving trend is shown on the following chart:

[Excess Supply Chart]

Apartments

As a result of the lack of building of multi-family units during the past three to four years the excess supply of multi-family housing has become absorbed in New England. In the process, rental concessions have become a thing of the past and rents are on the rise.

In another survey by the FDIC, rental apartment construction volume is tracked. In the Northeast in 1993, 86% reported apartment construction levels below average. That was 20 percent higher than other areas of the country. As of April 1996, 68% of respondents report apartment construction volume in the Northeast is below average, and this is 40% higher than results reported in other areas of the country.

[Apartment Construction Chart]

Nonetheless, as indicated on the chart above, today's 68% reporting below average volume in the Northeast is better than 1993's 86% results. And although little multi-family construction is taking place in the Northeast in general, in the hotter areas -- select areas of Boston and Greater Boston -- the deep freeze in apartment construction has begun to thaw.

The author, Stephen Traub, ASA, is Chief Commercial Appraiser for Property Valuation Advisors, Newburyport, MA. He is a certified general appraiser in NH, ME and MA. He can be reached at (508) 462-4347 or:
by e-mail: straub@shore.net