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Briefing
Understanding the Surge in Commercial Real Estate Lending
U.S. banks have increased their commercial real estate (CRE) lending significantly in the past five years. Economists and regulators note that some positive factors are driving this trend, but they also see potential risks. Analysts at the Richmond Fed have found that some banks could be especially vulnerable if economic conditions deteriorate. These include institutions that are in certain major urban areas and have high concentrations of CRE loans, rapid CRE loan growth, and heavy reliance on "noncore" (or illiquid) funding. But the analysts also conclude that, overall, banks' CRE exposures ...
Journal Article
Banks’ Commercial Real Estate Risks Are Uneven
Investors have been acutely attuned to commercial real estate (CRE) risks recently due to higher interest rates and changes in how Americans work. On the surface, these risks may seem particularly concerning for small and regional banks, which tend to hold large concentrations of loans backed by commercial properties. However, we show that CRE risks can vary substantially across property types and geographic locations, suggesting that aggregate CRE exposure may be a poor measure of risk.
Journal Article
Commercial Real Estate: Where Are the Financial Risks?
Large banks, with assets over $100 billion, tend to have significantly lower exposure to commercial real estate market risks than the average commercial bank in the US.
Commercial Real Estate Market Stress Poses a Challenge to Banks
Remote work, higher interest rates and other factors have made commercial real estate lending more challenging for banks, particularly community banks.
Working Paper
Lease Expirations and CRE Property Performance
This study analyzes how lease expirations affect the performance of commercial real estate (CRE) properties and how these patterns changed during the COVID-19 crisis. Even before the pandemic, lease expirations were associated with a notable increase in the downside risk to a property’s occupancy or income, particularly in weaker property markets. These risks became more pronounced during the pandemic, driven mostly by office properties. During the pandemic, the adverse effect of lease expirations on office occupancy increased more than 50 percent overall, and it doubled for offices in ...
Banking Analytics: Understanding the Composition of Bank Loan Portfolios
In the fourth quarter of 2024, commercial real estate loans represented a quarter of U.S. banks’ loan portfolios. What other types of loans did these institutions hold?
Journal Article
Why Do Net Interest Margins Behave Differently across Banks as Interest Rates Rise?
Rising interest rates can influence bank profitability positively (by increasing payments from those with floating-rate debt) or negatively (by forcing banks to offer higher returns to their depositors). Although most banks became more profitable as the Federal Reserve raised rates in 2022–23, a smaller group of banks saw consistent decreases in their net interest margins (NIMs). Understanding why these banks’ NIMs declined may provide useful insight to policymakers concerned with vulnerabilities in the banking system.Brendan Laliberte and Rajdeep Sengupta explore the differences in bank ...
Journal Article
“Stress Testing” Banks on Commercial Real Estate
Recent research tests the effects of a large (hypothetical) drop in commercial real estate prices: Banks most affected would be small and the resulting noncompliance would apply to a small fraction of assets in the US banking system.
Commercial Real Estate Exposure and Bank Stock Returns
An analysis suggests that commercial real estate exposures may have been a relevant driver of bank holding company stock returns in 2023.
Recent Trends in Banks’ Commercial Real Estate Exposure
U.S. bank holding companies that have the largest exposure to commercial real estate share some common characteristics. Our blog post explains.