WHAT IS CRE?

CRE stands for Commercial Real Estate, which is comprised of all real estate loans in banks and savings institutions, except residential mortgage, home equity loans and farmland.  CRE is an acronym used by bankers and bank regulators to denote an asset class comprised of loans of the following types:

As of June 30, 2008, the aggregate level of Total CRE loans at US commercial banks was as follows:

	Amt ($Bns)	Pct. of Assets
Non farm/Non Residential	$904.3	7.9%
Construction	$558.9	4.9%
Multifamily	$116.1	1.0%
RE Unsecrued	$  64.3	0.6%
TOTAL CRE	$1,643.6	14.4%

To make things more confusing, some banks and regulators are doing away with the awkward Non farm/Non Residential and beginning to refer to this category as simply commercial real estate or CRE.   For now, we will refer to the total of the four categories above as Total CRE.

CRE loans are generally loans that are secured by real estate or for real estate purposes.  They specifically exclude residential mortgages and home equity loans and loans secured by farmland.  CRE also excludes (i) construction loans for 1-4 single family dwellings and (ii) owner occupied commercial buildings. 

The distinctions and definitions of CRE are a bit confusing, but are clearly delineated in instructions banks use to prepare their quarterly "Call" reports and Y-9 Holding Company reports for the federal regulators. Regulators like to view concentrations in CRE as a percent of a bank's capital and loan loss reserves.  These calculations are now done as part of the quarterly Call Report and Y-9 preparation. 
 
Since 2000, Total CRE loans have grown from 11.6% to 14.4% of total assets.  Growth has come almost exclusively from commercial real estate (nonfarm/nonresidential) and construction, particularly from 2004-2006.  During those three years, construction lending grew at a rate of 26%, 35%, and 27% respectively. 

Commercial Real Estate (CRE) loans are one of the largest asset types on most bank balance sheets.  It is not uncommon for a bank to have more than 500.0 percent of its capital in CRE loans.  Over the past 15 years this has created concerns for regulators.  In the early 1990's CRE loan losses were blamed for many of the bank failures in the U.S.  Since then, banks have improved their underwriting and monitoring of CRE loans.  Regulators also have better tools to monitor and oversee CRE concentrations in banks. Regulators, however, continue to have concerns about CRE concentrations.  In response to their concerns, the primary financial institution regulators issued a Supervisory Letter that addresses Sound Risk Management Practices for CRE lending. 

For more information, go to CRE Statistics