Commercial Real Estate Loans May Add To Woes For Troubled Regional Banks

Commercial real estate loan defaults have risen to 14-year highs

By
Lyle Niedens
Full Bio
Lyle spent most of the past two decades in a variety of product, communication and financial writing roles with large asset managers and mutual fund distributors, mostly recently as vice president, director of product development with Waddell & Reed/Ivy Distributors Inc. Previously, he spent a decade in senior roles as an editor and reporter with business publications and financial news wires, including Dow Jones, BridgeNewsand Knight-Ridder Financial News. A graduate of the University of Kansas with an M.B.A. and a B.S. in journalism, he lives in Westwood, KS, a suburb of Kansas City, with his wife, Caryl, and their sons, Conley and Pierce.
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Published April 06, 2023
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Sizable exposure to commercial real estate (CRE) loans could add to the woes of regional banks already struggling with unrealized losses due to rising interest rates as defaults on such debt climbs to 14-year highs,

Lending for commercial real estate represents 18% of all loans—listed as assets on bank balance sheets—at regional banks, according to a recent report from Wedbush Securities. That's based on the median exposure of nine publicly traded regional institutions. Regional lenders with the most CRE loan exposure relative to their total loans include M&T Bank (MTB), Comerica (CMA) and Zions Bancorp. (ZION).

At a group of 27 smaller, mid-sized banks, commercial real estate accounted for 44% of total loan portfolios, based on median exposure. Such loans accounted for more than two-third of total loans at eight of those banks. New York Community Bancorp. (NYCB), which recently bought assets of Silicon Valley Bank, has CRE loan exposure to the tune of 71% of its entire loan book. Other notable names on the list include EastWest Bancorp. (EWBC) with 39%, Signature Bank (SBNY) with 43%, PacWest Bancorp. (PACW) and Western Alliance (WAL) with 28% and First Republic Bank (FRC) with 20%.

The figures mirror an estimate by Fitch Ratings that found commercial real estate loans account for a third of the loans at small banks with assets of $1 billion to $10 billion, compared with just 6% at banks with assets of more than $250 billion.

In addition, Goldman Sachs estimates small to mid-sized banks account for 80% of all commercial mortgage loans.

Here's a look at commercial real estate loan exposure at some regional U.S. banks that have been feeling the heat from the recent turmoil:

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  1. Reuters. "Analysis: Small U.S. banks imperiled by big office loans"

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