Some Upsides to First Republic’s Closure and Sale

It has only been a week since the Federal Deposit Insurance Corporation closed the First Republic Bank and sold it to JP Morgan Chase Bank, orchestrating the third forced shutdown or sell-off of a U.S. bank in about six weeks. 

Marcus & Millichap has come to a few conclusions about the event and its impact on the commercial real estate market, namely that the banking outlook may be improving in the long-run. “If additional bank closures can be avoided, or addressed as rapidly as First Republic, and the Fed holds interest rates flat, the consistency would help financiers and investors more readily calibrate their underwriting — the first step toward narrowing the buyer/seller expectations gap,” it said.

The implications for commercial real estate may be relatively benign.

For instance, the report cited signs that the single-tenant market is stabilizing and that capital for retail properties is still available, with local and regional banks stepping up lending to this sector since the pandemic began. In addition, consumer spending in necessity vendors and dining places continues to rise. And the overall single-tenant net-lease vacancy rate remained flat and below pre-pandemic levels in the first quarter, while the long-term structure of such leases engenders stability, Marcus & Millichap noted.

At the same time, the multifamily capital landscape also looks brighter, with First Republic’s sale unlikely to have much of an effect. Even though banks have tightened credit conditions, such as with lower loan-to-value ratios, other lenders have stepped up. “Borrowers can benefit from access to government sponsored agencies as well,” the report noted. Marcus & Millichap also noted that this year, more rentals have been newly occupied than vacated, reversing the pattern in 2022. And despite the fact that the delivery of multifamily properties reached near-record levels, there was only a “modest” quarterly rise in vacancy because of positive net absorption.