No, Small Banks Aren’t Holding the Bag on Half-Empty Towers
Contrary to a widespread figure, local and regional lenders don’t hold 70% of US commercial real estate debt. It’s closer to 32%.
Most US commercial real estate debt is owed to lenders other than domestically chartered commercial banks.
Photographer: Jason Henry/Bloomberg
One of the scarier financial factoids making the rounds this year is that local and regional banks hold 70% of US commercial real estate debt. Office buildings have been plummeting in value because of hybrid work, all commercial real estate faces challenges as low-interest loans mature amid higher rates, and look who’s holding the bag: the nation’s small and midsize banks, already facing doubters after deposit runs led to the failure of several of them earlier this year.
Happily, this factoid isn’t true. That is, small banks — defined as those not among the country’s 25 largest — do in fact hold 69% of the commercial real estate loans on the balance sheets of domestically chartered commercial banks, up from 60% five years ago, according to the Federal Reserve’s weekly reports on bank assets and liabilities. But most US commercial real estate debt is owed to lenders other than domestically chartered commercial banks.