U.S. banks are grappling with increasing delinquencies in commercial real estate (CRE) loans, which climbed to 1.4% in Q2. This marks the seventh consecutive rise, driven by high vacancy rates and falling office building values. In response, banks are boosting loss reserves and slowing new loan issuance, with CRE loan growth slowing to 2.2% year-over-year in Q2.

S&P Global forecasts a peak in CRE loan maturities in 2027, with $1.26 trillion expected to come due. For 2024, $950 billion in CRE mortgages are maturing. Federal regulators are permitting loan extensions but are keeping a close watch on banks with high CRE exposure.

Recent M&A activity, such as Bank of America’s $2.9 billion acquisition of Washington Federal Bank’s properties, reflects increased regulatory attention. Despite this, current delinquencies are lower compared to the 2008 financial crisis, thanks to stricter underwriting standards.

The Federal Reserve is likely to cut interest rates soon, but with new CRE loan rates significantly higher than those maturing, the impact may be limited.

Source:  SFBJ