Deutsche Bank Joins the Ranks of Institutional Loan Selloffs
The sales could help reestablish price discovery and strengthen valuations to ultimately pull the market out of its doldrums.
That Deutsche Bank is trying to offload up to $1 billion in CRE loans off its balance sheet, as Bloomberg reported. But a major institution looking to sell off CRE loans isn’t a surprise. In a way, that’s ultimately good news for commercial real estate.
The Canada Pension Plan Investment Board sold off interests in some CRE developments, including a share in a Manhattan redevelopment project for $1. The California State Teachers’ Retirement System took a 9% loss on its real estate portfolio in 2023. Late last year, some large banks — like an affiliate of Deutsche Bank as well as Goldman Sachs — started offloading CRE loan portfolios, as the New York Times reported. This year Canadian Imperial Bank of Commerce (CIBC) and Washington Federal Bank (WaFd) both sold significant blocks of loans to other institutions.
Nathan Stovall, director of financial institutions research for S&P Global Market Intelligence, told the Times that “banks are looking to shrink exposures.”
Such moves are painful for banks, investors, owners, and occupiers. There are major losses and business uncertainties. However, there might also be a significant silver lining in the stormy clouds.
A thorny issue that sources have been telling GlobeSt.com about for at least two years was the lack of transaction activity and, as a result, a loss of price discovery. For a long time, there has been a gap between buyers and sellers — shrinking over time, but still showing one side looking to hold onto higher prices from market tops and the other wanting bargains, especially with higher interest rates.
The percentage of loans being sold is a tiny fraction of the total $2.5 trillion in CRE loans held by all banks, according to S&P Global Market Intelligence. Selling loans also isn’t the same as selling properties. But all transaction activity helps establish boundaries and what might be acceptable or not. Buyers and sellers have to reach agreements and establish what will be collectively acceptable.
Also, it’s important not to overplay such exits and an industry rebuffing of CRE debt or even property in total. Institutions might be rebalancing portfolios across asset types after CRE valuations have caused an overemphasis on real property. They could also be taking an expected lowest loss rather than holding onto property in which they think the value could fall even further.