Tag: CRE

Office lending for banks has been one of the better-performing sectors of commercial real estate (CRE) for banks for some time. Even during the pandemic, the credit on office loans is doing surprisingly well. The question arises, what happens in the future? Will it be business as usual post-pandemic? Will companies take more space to provide for social distancing, 25% of the space as they go mainly to remote workers or 50% of the space to handle a hybrid remote work culture?

While several commercial real estate (CRE) sectors are showing signs of stress, the industrial sector is one of the few bank credit lines that are improving. Companies gained confidence at the end of the second quarter and started to lease more space. As such, weekly leasing activity jumped back to pre-Covid-19 levels after hitting a low in mid-April. In this article, we take a quick look at national CRE industrial sector economics and explain why banks may want to consider reallocating more capital to this area. 

While it is too soon to get the data on bank commercial real estate (CRE) portfolio delinquencies and forbearances, we take our benchmarks from the commercial mortgage-backed securities market as of May 14^th. As any commercial banker can tell you, hospitality and retail remain under the most pressure, jumping up more than 5x and 3x, respectively.  Office delinquencies are up 71%, month-over-month, industrial properties remain relatively unchanged while Other (self-storage, specialty, etc.) is up 3.5x.

There is now little doubt that the coronavirus will spread globally and will cause more supply and demand shocks in the market. While economic activity will slow, the amount and duration of the slowdown are big unknowns. Community banks may not have exposure to Chinese markets and may not have significant exposure to the energy sector.