Source: WallStreetOnParade.com
On Friday, the Federal Reserve released its semiannual Supervision and Regulation Report on banks. Commercial real estate loans at banks – particularly on office properties – continued to rank high on the Fed’s list of concerns. The Fed included the chart above showing that delinquency rates on office property loans held by the banks had skyrocketed from just over 1 percent at the end of 2022 to over 8 percent as of December 31, 2023. (The red text and arrow have been added by Wall Street On Parade.)
Banks are major lenders to the commercial real estate (CRE) market, providing almost $3 trillion in financing. According to a February 27 report from S&P Global, as of the end of the fourth quarter of 2023, two megabanks dwarfed all others in their commercial real estate loan exposure. JPMorgan Chase Bank NA, the largest bank in the U.S., held $173.31 billion in CRE loans while Wells Fargo Bank NA held $139.65 billion. Bank of America ranks second to JPMorgan Chase Bank NA in terms of assets, and yet its CRE loan exposure is less than half that of JPMorgan Chase, at $82.80 billion, according to S&P Global.
Friday’s Fed report built on concerns expressed by the Fed in its April release of its Financial Stability Report. The Fed voiced the following concerns in the April report in regard to the commercial real estate market:
“CRE market conditions continued to deteriorate, especially for the office sector, and prices continued to decline against a backdrop of high vacancy rates and weakening rents…
“The CRE office sector has faced strains resulting from an ongoing post-pandemic adjustment, and these strains could contribute to additional weakness in prices and rents going forward. Vacancy rates for offices located in central business districts and coastal cities increased further, and rents continued to decline since the October report.”…