Commercial real estate: UK CRE loan defaults hit 30%

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Although bad real estate loans triggered the credit crisis in 2007, they have taken a back seat to sovereign debt contagion in the present phase of global financial turmoil. But the market ignores real estate loans at its peril, particularly those made to finance construction and land developments. European banks have less exposure to real estate loans than US banks overall but in such markets as the UK and Ireland, nearly a third of all commercial real estate loans are in default, according to a new report from US-based real estate consultant Trepp. Trepp analysts trawled the latest set of European Banking Authority stress tests for clues about the health of European CRE finance. They found that European banks have some €1.4 trillion of CRE loans on their balance sheets, €150 billion of which are in default. Although at 6% of total assets European CRE exposure is around half that of the US banks, some markets are in much worse shape, pushing the aggregate default rate up to around 11%, compared with 3.7% in the US.