JPMorgan Checked Its Multifamily Loan Portfolio. So Far It Has No Concerns

No, look, everything’s fine, nothing to see, just $120 billion in multifamily loans, says

JPMorgan Chase recently took a “deep dive” into its $120 billion multifamily loan portfolio, said Chief Financial Officer Jeremy Barnum on Tuesday at the UBS Financial Services Conference, MarketWatch reported.

“We’re going to be watching it closely and we worry about everything,” Barnum said. “But right now, we actually don’t have any particularly large concerns about the multifamily portfolio.”

It may take self-restraint not to jump into a series of jokes on the CFO’s last name and showmanship, but concern about commercial real estate has swelled and reassurance seems needed, particularly with multifamily.

Once a CRE darling, multifamily has become a worry. The minutes of the Federal Reserve’s Federal Open Markets Committee January meeting mentioned multifamily as a real estate concern — the only property type they specifically mentioned with office.

The news about New York Community Bancorp about a month ago and then yesterday didn’t help.

So concerns have been high, especially as the internal operations of banks can be opaque to many. That is probably why Barnum noted that even with multifamily representing $120 billion of JPMorgan’s $200 billion in commercial real estate loans, things were different from stressed apartments. “We underwrite to current rents, not future rents,” he said. “We don’t underwrite based on the hope or the expectation of market-rate conversions on the rent-controlled space.”

That doesn’t guarantee financial safety. Future rents are still important because operating costs — utilities, taxes, insurance, maintenance — continue to rise. But there is also an intrinsic difference between managing rising expenses and planning on levels of future rents for a transaction to make sense at the start.

According to S&P Global Market Intelligence, JPMorgan Chase is the largest bank lender to developers, $173 billion in commercial property loans. Wells Fargo is second at $140 billion, with Bank of America third at $83 billion. JP Morgan also has the largest market capitalization: $535.9 billion, compared to number two Bank of America ($271.8 billion) and Wells Fargo in third place ($198.9 billion).

Even Jamie Dimon was offering some CRE loan nuance during a CNBC interview on Monday.

“First of all, put commercial in perspective with consumer,” he said. “The consumer markets are far bigger. What happened in 07 and 08, this isn’t that kind of thing. And a lot of these owners can handle what you call stress.” Dimon explained that when interest rates rise 300 basis points, like has happened with the Fed and its inflation fight, “whatever you own with a cash flow is worth 30% less. That’s not a crisis, that’s kind of a known thing.”

“If you have a recession, yes, it will get worse,” Dimon continued. “If we don’t have a recession, I think most people will be able to muddle through this: refinance, put more equity in. If rates go up and we have a recession, there will be real estate problems. And some banks will have a much bigger real estate problem than others.”

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