Research Briefing | Jul 7, 2023

US banks selling Commercial Real Estate loans underscores tighter credit conditions

The recent sale of a portfolio of floating-rate construction loans could be the start of banks unloading commercial real estate (CRE) loans. With the ongoing banking turmoil, US banks, many regional, may be stepping up sales in order to reduce exposure to the real estate industry.

What you will learn:

  • As of Q1 2023, the largest share of commercial and multifamily mortgages, about 40%, is backed by banks. As we head into 2024 and beyond, the majority of loans set to mature are backed by banks as well. By 2026 and 2027, more than half of the maturing loans will be backed by bank lenders.
  • Thankfully, bank delinquency rates on commercial and multifamily mortgages remain low but have increased recently. Looking at outstanding real estate distress paints a worrisome picture for the office and retail sectors. That worry only increases for the office sector when we look at potential distress.
  • The bank loan disposals over the past several months are evidence of the impact from tighter credit conditions on CRE. Elevated interest rates and CRE price declines are forcing banks to assess, and possibly offload, some of their CRE debt.
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