Could CRE Disrupt the Banking System?
Will CRE Spark a wave of Bank Failures?
News Headlines Suggest CRE Loans Will Be Next Shoe to Drop
Broad-based media coverage suggests regional and local banks are overexposed to CRE loans – they could present a significant risk for the banking sector in 2023
Many of these reports have misinterpreted the data, misrepresented the findings or relied on loose estimates that overrepresent the CRE risk
Some CRE Loans Will Default, but The Risks Are Overstated
Most of the default risk is in two segments: office properties with elevated vacancy rates and properties purchased between 2H2020 – 1H2022 using aggressive underwriting and variable rate debt with no cap on it
Because of strong underwriting since the Global Financial Crisis, the vast majority of the debt coming due has significant investor equity
What Investors Should Consider
The FDIC and the Federal Reserve have backstopped the banking sector reducing the risk of a broad banking crisis
Banks represent a relatively small segment of the total CRE lender stack and only a small portion of their CRE portfolio comes due in 2023
*As of 2022
Sources: Marcus & Millichap Research Services, Mortgage Bankers Association, Trepp Inc., MSCI
