Built ’s Post

Built 's John Ricciardi sheds light on the challenges banks face with overexposure to commercial real estate (CRE) and how advanced financial technology and proactive strategies can turn the tide. A must-read for anyone in the banking and finance sector!

More than half of the nearly $400 billion in commercial real estate loans due to mature in 2023 remain outstanding, says MSCI Real Assets. Combined with the nearly $500 billion set to mature in each of the next two years, “more than $1.2 trillion in commercial mortgages will be coming due in a challenging capital markets environment,” the MSCI Real Assets team writes in the latest U.S. Capital Trends report. #cre #distressedassets

Small banks in the Chicago area are holding an outsized portion of the risk from the depressed commercial real estate sector, with more pain expected in 2024 despite forecasts for an improving economy. “For the smaller banks in the Chicago area, the commercial real estate loans are, relative to their total loan portfolio, are more than twice that of the larger banks,” said Terry McEvoy, banking industry analyst with Little Rock, Ark.-based financial services firm Stephens. For the 20 local banks with the biggest percentage of loans devoted to commercial real estate, the average had 53.6% of its loans coming from that troubled sector, according to data provided by Stephens. Those 20 area banks with the most commercial real estate exposure had assets ranging from $107 million to $2.642 billion. Elgin Bancshares, which has assets of $355 million, topped the list, with 70.5% of its loan portfolio devoted to commercial real estate. By comparison, the biggest banks in the Chicago area by asset size had commercial real estate loans that averaged 19.1% of their total loan portfolios, according to the Stephens data. The 20 banks on that list had assets ranging from $2.627 billion to $3.395 trillion. Privately held Elgin Bancshares’ Union National Bank in Addison is comfortable with its loan mix, said Anthony Catanese, the bank’s business development sales manager. He noted that much of its commercial real estate exposure came from businesses in the industrial, manufacturing and wholesale sectors, which have fared better than office and multi-family home loans. “We are still actively doing loans and doing deals,” Catanese said. Even some of the bigger banks on the list were starting to note pressure from the commercial real estate sector despite hedging their bets with a more diversified portfolio.For the 20 biggest Chicago banks, Old Second Bancorp had the most commercial real estate exposure, accounting for 44.9% of its loan portfolio. “A lot of the debt is going to come to maturity this year,” said Derrick Barker, CEO of Atlanta-based real estate financing company Nectar. “The assumptions that people were making are not going to have panned out and people are going to have to refinance or sell. It is just the math of the situation. We have not seen the real reckoning of what is going to happen in the real estate space.” In the next three years, $2.2 trillion in commercial real estate debt financed at rates in a near-zero interest rate regime is coming due.  Regulators have been preparing for this. Treasury Secretary Janet Yellen recently warned about the commercial real estate sector but said U.S. regulators are working to ensure that banks' loan-loss reserves and liquidity levels are adequate to cope with a potential rise in defaults. By Mark Weinraub the banking and finance reporter for Crain’s Chicago Business. 

An uptick in CRE loan closings at the end of 2023 – although slight – suggests a potential shift in sentiment among banks and other lenders. 📈 Does this mean the start of stabilization in the financing market? The CBRE Lending Momentum Index saw a 1% increase in Q4, the first quarterly rise since the beginning of 2022. Despite this improvement, the index remained down more than 38% compared to the same period a year ago. This Bisnow article reflects on the ongoing adjustments to rising interest rates: https://lnkd.in/gDJhMMuM #IntegrisVentures #RealEstateOperator #CommercialRealEstate #CRELenders #CBRELending

Last week I had the opportunity to speak with Kunyi Yang of GlobalCapital to talk about the new bank capital requirements, which will have a significant impact on commercial and residential lending, perhaps taking us "back to the future" in the securitization markets. The article is below, but I'll highlight a few of my comments here: "We believe that securitizations will [provide] the majority of the funding for those mortgages, as the securitization markets offers a more efficient way of allocating risks relative to some other sources of funding right now....This was the original premise of securitization when it was developed in the late 1980s and early 1990s: allowing depositories to continue to originate loans while moving the risks off balance sheet to global investors who are more suited to assume those risks.." For both commercial and residential, the bank portfolio subsidy will no longer establish the benchmark borrowing rates. This is good news for private capital and for securitization professionals, not as good of course if you are accustomed to borrowing money from your local or regional bank. #commercialrealestate #residentialrealestate #securitization #RMBS #cre

Is CRE lending finally finding its footing on solid ground? There are signs that lending conditions may be stabilizing for certain asset classes, despite capital market headwinds, but it's still a long way off from a year ago. https://lnkd.in/gS2fNmHg #commercialrealestate #commerciallending #commercialfinance #mortgageadvisor #capitalmarkets

🏦 As we navigate the evolving landscape of commercial real estate, it's crucial to understand its impact on our financial institutions. Recent data reveals that delinquent commercial property loans among the six largest U.S. banks nearly tripled to $9.3 billion in 2023 due to high vacancy rates and increasing borrowing costs 📈 🔍 Today, regulators are paying closer attention to this sector as potential risks to bank stability grow. Interestingly, for almost half of all U.S. banks, commercial real estate debt is their largest loan category 💼 While these loans are more concentrated among smaller banks, several major financial institutions have built substantial portfolios in commercial lending. The graphic below shows the exposure of top U.S. banks to commercial real estate based on Q3 2023 data from UBS 📊 As we continue monitoring these trends and their implications for site development and planning strategies, let's strive towards a sustainable future where growth aligns with risk management 🌱 #CommercialRealEstate #Banking #RiskManagement #Sustainability

🏘 Lending to property investors is increasing once again 🏘⁣ ⁣ Latest ABS figures show that in December 2023, banks lent over $26 billion in new home loans. And one-third of this figure, a whopping $9.5 billion, was to property investors.⁣ ⁣ That equates to 36.2% of all housing loans – the highest market share for property investors since mid-2017. 😮⁣ ⁣ What’s driving investor interest? 🤔⁣ ⁣ ✅ Rent returns as high as 9%, according to Proptrack.⁣ ✅ Expectations of more house price growth in 2024, according to CoreLogic and ANZ bank⁣ ✅ A wafer-thin vacancy rate of 1.1% nationally (SQM Research)⁣ ⁣ If buying an investment property is on your radar in 2024, talk to us today about your options for an investment loan.⁣ ⁣ We can help you work out how much equity you may be able to leverage, as well as your overall borrowing capacity. 👇⁣ ⁣ To find out more, contact Joe on: ☎ – 0413 444 436 💻 – joe@fastfunding.com.au #FastFunding #Benowa #BenowaFinance #BenowaMortgageBroker #BenowaHomeLoans #GoldCoast #GoldCoastFinance #GoldCoastMortgageBroker #GoldCoastHomeLoans #SelfEmployed

Last week the Wall Street Journal shared an article titled "Commercial Real Estate Lending Slows Down." ‘Slow down’ is a gentle way of characterizing the current lending environment. Why has the lending environment shifted? Many lenders are sidelined; rates are extremely high relative to the last ten years; loan-to-value ratios are down; and borrowers cannot refinance, leaving banks unable to make new loans. Read more of my thoughts here: https://hubs.li/Q028dKH-0