Buyers Start to Line Up for Bank CRE Loans

Despite the big names in finance and CRE who have embraced the near future, experts said that markets are likely near the bottom, and called it time to “buy, buy, buy,” some are also saying, “sell, sell, sell.” Particularly banks.

The high-level view comes from the Federal Reserve, which earlier this month revealed that, while the economy was improving, CRE loan delinquency rates continued to rise. They remain above long-term historical averages. The Fed added that parts of banks’ CRE loan portfolios remain under stress. Conditions have continued to deteriorate.

Last week, Wells Fargo’s shares dropped a little more than 8% even though earnings beat the consensus expectation, as Business Insider reported. Within a few days, the stock had more than recovered. But signs of concern were there. Goldman Sachs analyst Richard Ramsden pointed out that as the quarter continued, there was more revenue from low-margin fees and less high-margin net interest income. NII had declined from the previous quarter and the same quarter the previous year.

Meanwhile, JPMorgan Chase’s second-quarter earnings drove its stock price up. But buried in its earnings release was $384 million in credit losses, including an increase in net reserve of $220 million and net charge-offs of $164 million, about half of which was due to office loans. Driving the net reserve build was the incorporation of the First Republic portfolio. CEO Charlie Scharf said during the earnings call, “Fundamentals in the institutional-owned office real-estate market continued to deteriorate as lower appraisals reflect the weak leasing market in many large metropolitan areas across the country.”

More banks are ridding themselves of long-held CRE investment, according to CoStar. Perhaps the extend-and-pretend technical approach of keeping loan losses off the balance sheet has stopped working so well. Some recent sales may be a sign of more on the horizon.

Some on the other side of the transactions are eager. Marathon Asset Management Chief Executive Officer Bruce Richards told Bloomberg TV that trillions of dollars of questionable commercial real estate will need workouts in the next couple of years. Morgan Stanley was buying $700 million of failed Signature Bank’s CRE loans.

But the properties have to be sufficiently good. An easy reminder from last month was when Blackstone put a $1.3B CRE-backed bond deal on hold. A person familiar with the situation, who communicated with GlobeSt.com, said that it was an opportunistic refinancing deal that Blackstone would ultimately undertake only if the pricing were attractive, and it was not. The person also noted that there were no upcoming maturities involved, but that the company continues to be active in the market and has refinanced nearly $15 billion in CMBS loans since the start of 2024.