Despite rising concerns about liquidity, US bank deposits have remained broadly stable for the past few years. However, lenders may be increasingly opting to reduce exposure to commercial real estate (CRE) loans.
As of the first quarter of 2023, the largest share of commercial and multifamily mortgages, about 40%, is backed by banks, said Oxford Economics in a recent research briefing. By 2026 and 2027, more than half of the maturing loans will be backed by bank lenders, it predicted.
Bank delinquency rates on commercial mortgages remain low but have increased recently. Loan disposals over the past several months are evidence of the impact on CRE of tighter credit conditions. Higher borrowing costs and tighter lending conditions have caused much speculation about the impact on outstanding real estate debt.
There has been a recent acceleration of bankruptcy announcements, said Oxford Economics. Real estate deal volume has decreased over the past few quarters, it said, citing data from MSCI Real Capital Analytics.
Retail and office have the highest share of outstanding distress balance across the five main sectors.
Lenders would look to sell portfolios backed by high-quality core assets that have a short duration and a floating rate. They might then proceed to sell non-core assets.
However, when combining leverage, rent growth and cap rates in a possible scenario analysis, the potential risk to banks is mitigated more than before the global financial crisis, according to Moody’s Analytics. The exposure of banks to CRE overall is low, especially among the largest banks.
