A new report from Trepp has examined the ongoing situation of regional banking and finds that even as markets stabilize, commercial real estate lending remains vulnerable.
In early February, Trepp formed a list of 10 banks that had heavy commercial real estate loan concentration ratios, a measure of how much each financial institution's loan portfolio is concentrated in commercial and multifamily mortgages. The list ranged from Independent Bank Corp. at the bottom with 302% to New York Community Bancorp's Flagstar Bank subsidiary, at 477%. According to a GlobeSt.com review of Federal Reserve Bank data from September 30, 2023, eight out of the 10 banks are among the top hundred largest in the U.S.
In its latest report, the firm said that in some ways, things had improved since Silicon Valley Bank, First Republic Bank, and Signature Bank failed in 2023. The exposure to interest rate risk—holding bonds with low interest rates that lose significant value when rates climb—is broadly contained. Many banks have shortened the maturity of securities portfolios to reduce their sensitivity to rate changes.
Recommended For You
However, Trepp reported that credit risk, especially CRE, is a growing issue. Using data from the Federal Reserve via the St. Louis Fed on delinquency rates on CRE loans across all commercial banks, the rate was 1.57% in Q4 2024. That number isn’t historically enormous, but it is up from 1.17% in the last quarter of 2023 and 0.67% from pre-pandemic times.
Trepp says that its anonymized bank loan data shows delinquency moving upwards, with office properties driving it. That started to reverse in Q4 of 2024, “likely owing to stricter office attendance policies," according to the software firm.
However, the growth of delinquency rates is concerning when banks with high concentrations of CRE loans see problems in performance. By the end of 2024, the $3 trillion in CRE loans represented 12.7% of total bank assets. These are averages. Trepp said the concern is for banks that have both high exposure and high delinquency.
Like delinquency, the charge-off rate on CRE bank loans has jumped in the last few years to 0.26% in Q4 2024. Earlier major financial crises saw the rates range from 2.5% to 3.13%. And, as with delinquency rates, the distribution of problems will be what matters. As Trepp noted, many banks have extended or modified loans, and the proportion of loans near maturity, primarily due to multifamily and office properties, has been expanding. Banks might be pushing problems off later, taking time to understand property values and make the right decisions.
Some banks have hedged risk by selling off blocks of loans or using Synthetic Risk Transfers (SRTs), in which a bank pays the investor to take the default risk while the loan remains on the bank’s balance sheet.
In short, most banks can manage their CRE risk, but some face heavier exposure and could be a risk to the banking system if they set off a broader panic.
Also, “lastly, while the risk of bank failures seems low for now, the banking system is not immune to external shocks, and significant deterioration in economic conditions could still pose a threat.”
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
