Effect of Covid-19 on Community Bank CRE Portfolios

By May 4, 2021 May 5th, 2021 No Comments

MountainSeed is a trusted partner to nearly 10% of US community banks and credit unions, covering all 50 states. Through our services in commercial appraisal management, debt brokerage, and whole loan trading, MountainSeed currently touches $5 billion in commercial properties each month.

MountainSeed, a leading commercial appraisal management service provider, recently conducted an analysis of appraisal requests by loan type and property type to understand the pandemic’s changes on real estate lending. The key takeaway from this data was the increase in appraisal requests for banks looking at loan modifications coupled with a decrease in pre-foreclosure appraisals.

Loan modifications Outpace Pre-foreclosures

The study looked at appraisal requests for existing loans that required monitoring or had already had a negative event or missed payment. From the beginning of 2019 through July 2020, non-performing loans and pre-foreclosures accounted for over 50% of the appraisals for non-origination or renewal. Starting in August 2020, that category fell to 36% and has continually accounted for 30-40% of the volume for most of the time since.

*Excluding new originations and renewals


Loan modifications, which had been the second biggest category at 25-35% of volume, spiked to 78% in September 2020 and remained above 50% of the requests most months through March 2021. The data indicates that banks have become more flexible with their real estate loans and are willing to work with borrowers rather than take over a property.

Given the eviction moratoriums that were instituted in the spring of 2020 and the passage of CARES Act I at the end of April 2020, it is understandable why banks were more flexible than they previously had been with troubled loans. Most banks understood that the borrowers were having difficulty collecting rent from certain types of tenants and that it might be in their best interest to work with the borrower rather than start the foreclosure process. In addition to the drop in pre-foreclosure appraisals, appraisals for foreclosures also declined at that time.

It appears that banks tended to avoid taking responsibility for foreclosed properties due to limitations on their recourse to improve performance. It also appears that, given the economic environment, it may have been to the lenders’ advantage to wait for borrowers to catch up on payments as tenants received PPP money rather than take over the asset themselves.

Pandemic Effects Agnostic to Property Type

A surprising finding was the lack of change by property type once the pandemic impacted the economy. Retail properties were the largest segment both before and after the pandemic. Given the distress in retail due to the pandemic, one would expect the share of appraisals for stressed retail properties to increase relative to pre-pandemic years. However, that wasn’t the case. The percent of retail properties compared to others remained in the same range.

That was true for the other property types as well. No single property type saw a dramatic increase or decrease in appraisal requests. Based on other real estate data, hotel occupancy and revenues fell dramatically and had more distress than other property types excluding retail. Given the higher level of stress, more appraisals relative to other property types might have been expected.

At the other end, office and apartment occupancy and payments held relatively well compared to pre-pandemic. The number of stressed office and apartment properties needing appraisals compared to the other property types might have declined. That didn’t happen.

We will continue to monitor both trends to see if the lack of appraisals was due to a delay as the market cleared or if other factors impacted the lack of change in property mix.


With many banks releasing earning reports that show strength in their portfolios combined with the removal or reduction in loan loss reserves, time will tell if loan modifications eventually turn into foreclosures, or if the recovery is strong enough to bring the modifications back into performing credits.

This is MountainSeed’s first look at this data, which will serve as the foundation to a new product offering which will include an early look at stress in the commercial real estate market. Please check back for additional blog updates as MountainSeed unveils MountainSeed Market Analytics, a new suite of products and analysis based on previously unseen data. For more information, or to receive a demo of MountainSeed Market Analytics, contact MountainSeed Sales at