Building Stress: Are US Banks Headed for a Commercial Real Estate Reckoning?

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Building Stress: Are US Banks Headed for a Commercial Real Estate Reckoning?

08 April 2024 / Report

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Banks are the largest lenders to commercial real estate (CRE) and have grown the business in the past decade. These loans are coming due amid decade-high interest rates and a drop in demand for office space stemming from hybrid work—upending a traditionally lower-risk business for banks. Financial institutions have yet to fully come to terms with their losses; the reckoning is coming.

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The largest banks, with over $250 billion in assets, are less at risk as they recognized problematic CRE loans, lifted loan loss allowances, possess an ample capital cushion, and do not exhibit concentrated CRE exposure.
However, small, midsize, and large banks are vulnerable because they have concentrated exposure, fewer allowances, and less capital to absorb CRE loan losses. These banks, with assets ranging from $100 million to $250 billion, will likely lift CRE charge-offs throughout 2024.
Banks, especially those with less than $100 billion in assets, are restricting lending to CRE. While this is reducing the issuance of new CRE loans, tighter lending standards cannot alleviate existing concentrations on bank balance sheets.
Companies will experience more restrictive financing conditions as the reckoning unfolds, one tha

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