- CRE Daily
- Posts
- Big Banks Are More at Risk of CRE Loans Than Smaller Lenders
Big Banks Are More at Risk of CRE Loans Than Smaller Lenders
Despite the belief that commercial real estate troubles are hitting smaller or regional banks the hardest, big banks are currently showing the most strain.
Good morning. The commercial real estate challenges often attributed to smaller banks are now taking a toll on larger banks, revealing cracks in their lending portfolios. Plus, the parent of Saks Fifth Avenue, is buying Neiman Marcus Group for $2.65 billion.
Today's issue is sponsored by InvestNext—raise capital without limits.
🔔 You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
Market Snapshot
|
| ||||
|
|
BANKING & LENDING
New Data Says Big Banks Are More at Risk of CRE Loans Than Smaller Lenders
Despite the belief that commercial real estate troubles are hitting smaller or regional banks the hardest, big banks are currently showing the most strain.
Loan exposure: Although smaller banks hold a significant portion of CRE and multifamily property debt in the U.S., the top 25 largest banks are experiencing more loan delinquencies. Not all CRE loans are equal, with various factors affecting performance, such as loan purpose and property type.
Delinquency disparities: Data from S&P Global Market Intelligence reveals that loans for properties intended to be leased (non-owner-occupied) and held by banks with over $100 billion in assets have higher delinquency rates. In the first quarter, over 4.4% of these loans were delinquent or in nonaccrual status, compared to less than 1% for smaller banks and owner-occupied loans.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/3f060d5c-a111-4ffb-90f2-e89fac1b17be/Screenshot_2024-07-08_06.18.45.png?t=1720433976)
Zoom in: Higher interest rates are the difference. Owner-occupied CRE loans perform well if the business is healthy and can make payments, says S&P Global. Leased properties, however, are more sensitive to interest rates. If rental income doesn’t cover rising loan costs or refinancing, problems arise.
City vs. suburb: Geography plays a role, too. Though big banks aren't the only ones lending downtown, larger banks face more immediate maturities. MSCI Real Assets shows national banks held 29% of maturing office debt last year and 20% this year; regional banks held 16% and 13%. With balloon payments common, banks with closer payoffs must assess repayment risks.
➥ THE TAKEAWAY
Why it matters: Big banks face growing CRE challenges with a 1.1% net charge-off rate for non-owner-occupied CRE loans in Q1, a full point higher than smaller banks. If the property downturn worsens, smaller banks could be hit hard, and the exposure could shift. However, if high interest rates continue with a steady economy, these smaller banks might see hidden value emerge.
TOGETHER WITH INVESTNEXT
Raise Capital Without Limits with InvestNext
Flexibility is your greatest asset when competing to raise capital in today’s volatile real estate investment market. That’s where InvestNext comes in.
Create compelling deals to secure your raise - without being restricted by your investment management platform.
Raise and call capital when and how you need it with flexible deal structures.
Offer multiple equity classes & debt funds, plus multiple start dates within a single offering.
Don’t be limited by your investment management software - upgrade to InvestNext, the Real Estate Investment Management Platform.
✍️ Editor’s Picks
Cooling economy: June's job numbers, with 206,000 new jobs and a 4.1% unemployment rate, suggest a cooling labor market and potential for future interest rate cuts.
Pitching developers: Airbnb hires former Radisson CEO Jim Alderman as Head of Residential Development to strengthen partnerships with condo developers and boost short-term rentals.
Growing pipeline: Healthcare Realty Trust expects over $1 billion from joint venture and asset sales, with $400 million generated year-to-date and most closing in Q3.
Coastal Oasis: CoStar Group CEO Andy Florance sold his beachfront Florida home for $28.5 million, setting a new record for the most expensive home sold on the Panhandle.
Inevitable crash: Lumber prices skyrocketed during the pandemic as homebound Americans embarked on renovation projects, only for the supply to be caught off guard.
Hidden gems: These are the best U.S. national parks for hiking, camping, birding, and biking—crowd-free and systematically ranked, with a surprising top pick.
🏘️ MULTIFAMILY
Looming crisis: Home affordability is a major issue in 80% of U.S. counties, with the national median home price hitting $360,000, according to ATTOM.
Houston, we have a problem: Hamilton Point Investments acquired four Houston apartment complexes for $195 million after a 20% drop in multifamily values.
Reducing deposits: A new California law limits security deposits to one month's rent, aiming to reduce housing barriers but shifting financial risks to landlords, increasing tenant scrutiny.
Growing gap: According to NIC MAP Vision, senior housing will face a $275 billion investment shortage by 2030, and construction will need to triple to meet demand for those 80 and older.
🏭 Industrial
Growing demand: BBX Logistics Properties and FRP Development plan to replace Davie's Signature Grand with a 182,000 SF industrial park, having acquired the site for $24.5M.
Buyer’s market: Sales of single-tenant, triple-net-leased properties rose 10.6% to $2 billion in Q2, driven by industrial properties, marking the first increase in two years.
Data limits: Loudoun County voted to remove data centers as a by-right use, requiring board approval for new projects to diversify the economy, with a final vote pending.
🏬 RETAIL
Mega-deal: HBC, the parent of Saks Fifth Avenue, is buying Neiman Marcus Group for $2.65 billion, with Amazon and Salesforce as minority shareholders.
Foot traffic: Retail property owners are enjoying strong demand and low vacancies, driven by resilient consumers and a robust labor market, per Marcus & Millichap's Q2 report.
Going small: Consumer preference for localized shopping is boosting small-format retail, with Sprouts, Trader Joe's, and Whole Foods expanding smaller stores, says Placer.ai.
🏢 OFFICE
Turnover: According to CBRE, fully remote companies have higher turnover rates, while most organizations expect employees to be in the office two to four days a week.
Hand back the keys: MetLife foreclosed on a 257,000-square-foot El Segundo office building for $72.8 million after Starwood Capital and Artisan Ventures defaulted on an $83.9 million loan.
Seizing the distress: After numerous setbacks, Fortress Investment Group plans to seize the half-empty 145 South Wells office tower in Chicago, which is facing $57 million in debt.
🏨 HOSPITALITY
Hollywood hotel: Developer Fariborz Moshfegh resubmits plans to replace a 100-year-old rent-controlled complex in Hollywood with a 10-story, 156-room hotel.
Make it affordable: Shopoff Realty plans a 215-room hotel on Huntington Beach's former Magnolia Tank Farm, with a commission hearing on July 10.
📈 CHART OF THE DAY
Multifamily and single-family housing starts and permits have declined, with May's multifamily starts dropping 52% year-over-year to 278,000 units due to higher interest rates and tighter lending, per RealPage data.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/99b4b3cc-1939-40e3-a99b-ec6de74573d6/CRE_Daily_Referral_Program.gif?t=1708515323)
You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
What did you think of today's newsletter? |
Reply