Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic

Binder, Kyle; Drexler, Alejandro; Greenwald, Emily; Schulhofer-Wohl, Sam

Newsletter

Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic

Abstract: The Covid-19 pandemic had an immediate and substantial impact on the commercial real estate (CRE) market—emptying workplaces, shopping centers, and hotels, thus affecting the cash flows of businesses occupying commercial space and in turn the ability of commercial space owners to meet their debt obligations. Delinquent CRE loans began to surface soon after the pandemic started and remain elevated in 2021. Broad loan delinquencies would represent a potential threat to bank capitalization and solvency, particularly for smaller banks that tend to have higher concentrations in CRE lending. Collateral and loan performance have varied significantly by property type during the pandemic. However, regulators do not collect information on CRE exposures by property type at smaller banks, which limits our insight into the systemic implications of CRE exposures at these firms.

Keywords: Financial Economics;

JEL Classification: G21; R3;