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Hopes for a banking sector rebound after the election have been swiftly undercut by growing concerns over global trade and a fresh wave of uncertainty surrounding loan defaults—an issue already surfacing in Florida.

According to Federal Deposit Insurance Corp. data, the percentage of overdue and nonaccrual loans in Florida climbed from 0.52% at the end of 2024 to 0.70% in the first quarter of 2025. Over the course of 2023, troubled loans increased from 0.46% to 0.70%.

To manage the rising threat of loan losses, banks have allocated hundreds of millions of dollars to reserves over the past two quarters. Much of this caution centers around over-leveraged commercial real estate, particularly in Tampa Bay, where property values have dropped significantly since their post-pandemic highs. Some multifamily properties have already sold at steep losses—such as an apartment complex south of Gandy that changed ownership last month.

The broader impact of tariffs is expected to hit a wide range of commercial borrowers, especially businesses with heavy reliance on international supply chains.

“The range of uncertainty is far wider than it was just a month ago—there are many variables at play,” said Raj Singh, CEO of Miami Lakes-based BankUnited, during a recent earnings call. “The final outcome on tariffs is still unknown, and it will definitely have repercussions.”

BankUnited increased its loan loss reserves by $15 million last quarter, which Singh said should be adequate even if credit performance weakens beyond current forecasts. He mentioned that their risk models reflected slightly worsening conditions based on April data compared to March.

“With the current level of unpredictability, it makes sense to maintain some extra capital,” Singh added.

While the exact effects of tariffs on specific sectors remain unclear, one area expected to feel the impact early is industrial warehouse real estate, a category that has outperformed others in recent years.

John Corbett, CEO of SouthState Bank, said during the bank’s latest earnings call that their credit team identified about $200 million in industrial warehouse loans located near port cities—a relatively modest exposure for the $65 billion institution.

“Our credit team is taking a comprehensive look at the loan book—both top-down and bottom-up—meeting with clients and listening to their concerns,” Corbett said. “There’s no panic, but many clients are sensibly postponing capital investments.”

 

Source:  SFBJ

 

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Uncertainty surrounding the direction of interest rates has been a major challenge for commercial real estate (CRE) trading momentum, according to Hessam Nadji, CEO of Marcus & Millichap, during an appearance on Yahoo! Finance.

Private individual investors, high-net-worth individuals, and small partnerships, who make up the majority of CRE ownership, are highly sensitive to interest rate changes. When the market anticipates lower interest rates, sellers tend to hold off, waiting for better values. Conversely, if rates are expected to rise, the opposite occurs, Nadji explained.

“It’s critical for the Federal Reserve to communicate clearly,” he said. “Looking forward, the market is starting to accept that we won’t return to the low levels seen in the previous cycle. While inflationary pressures are easing, they aren’t disappearing, so the Fed’s ability to aggressively lower rates will be limited.”

Commercial real estate values have decreased since peaking in March 2022, and many investors are now using cash to secure properties they’ve been eyeing, with plans to arrange financing when rates fall further, according to Nadji. He also emphasized the importance of the 10-year Treasury yield in driving CRE lending, noting that its recent rise to 4.5% has significantly influenced market sentiment.

“The optimism stems from corrected valuations, steady job growth that doesn’t challenge the Fed, and a combination of these factors alongside the scarcity of new supply,” Nadji added. “Building new developments is costly, so the supply side is in alignment with current market conditions.”

Turning to the potential effects of President-elect Trump’s proposed immigration policies, Nadji identified two key concerns. First, a large migrant population traditionally supports workforce housing rentals, so deportation efforts could negatively impact gateway markets and Class B and C apartment properties. Additionally, changes to immigration policy might affect the construction labor force in the U.S. However, Nadji suggested that the actual implementation of these policies might not match the aggressive scope outlined during the campaign.

Nadji also touched on the impact of tariffs on U.S. trading partners, which could influence supply chains and material costs, including lumber, for new construction.

Overall, while older, outdated office buildings continue to face challenges, Nadji highlighted that the retail and apartment sectors are performing well. Retail, in particular, is seeing a surge in optimism, with a two-decade high driven by the return of consumers to stores and digital brands creating physical showrooms.

“Retail is the industry’s current darling, and apartments are thriving,” said Nadji. “Homeownership affordability is at an all-time low compared to renting, leading to exceptionally strong demand for rental apartments.”

 

Source:  GlobeSt.