Although interest rates have eased over the past couple of months, banks continue to face increased exposure to unrealized losses associated with commercial real estate, according to a report from the Banking Initiative at Florida Atlantic University. Fifty-nine of the largest 155 banks in the country had exposures greater than 300% in the third quarter of 2024, which puts them at risk for regulatory enforcement actions.

Banking industry observers have warned about future losses on CRE mortgages as hundreds of billions of dollars in loans are set to reprice in a high-rate environment over the coming years, said FAU. Many five-year balloon CRE mortgages originated in a lower-rate environment in 2019, 2020 and 2021.

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