International banks issued 11% of the distressed loans last year, while national and regional banks each issued 21%, according to RCA. 

Meanwhile, much of the risky lending came from investor-driven lenders, which had an average loan-to-value ratio of 69.1% for office, industrial and retail properties from 2010 through April 2020. For regional and local banks, national banks and international banks, the average LTV was between 65% and 67%, while it was 63% for CMBS. 

"Banks of all scale have captured a larger share of all commercial mortgage activity than the CMBS market. These bank lenders were also more aggressive at origination, with higher LTVs than CMBS lenders," Costello wrote in a report for RCA.

"However, the aggressiveness of bank lending is tame compared to what some of the investor-driven lenders (a grouping that includes debt funds) were doing with their leveraged lending platforms," he added.

When borrowers default on CMBS loans, a special servicer typically steps in, which makes it easier for investors to identify distressed properties. Finding troubled bank-issued loans is more difficult.

"It's a less transparent market than CMBS," Costello said.  

"The banks don't have the same incentives to clear stuff out," he added. "They're also chock full of capital. And regulators are telling them, 'Don't worry about capital reserves at the moment.' So they're naturally inclined at the moment to pretend and extend … and effectively kick the can down the road." 

Costello recommended that investors do additional research to figure out which banks have been making risky loans then build relationships with those banks. 

"You can step in and start providing capital to buy out some bad loans or work with current borrowers to try to reposition the property," he said.