Commercial lending

The American Bankers Association's Economic Advisory Committee said access to loans is likely to further soften, while defaults and credit losses could increase in the second half of the year.

New loan acquisitions fell to their lowest level since 2020, but companies also grew shares of residential securities noticeably over the past three years, S&P Global Market Intelligence said.

The work-from-home phenomenon spawned by the Covid-19 pandemic and a slowing economy are pushing tenants to cancel or not renew leases, making building owners miss loan payments.

Both loan demand and credit availability have contracted sharply, according to senior executives at several of the nation's largest banks. Their comments came against the specter of a potential recession.

When the once-ubiquitous interest rate goes away at the end of June, some businesses that have older loans may see a sudden jump in their payments. Banks, lawyers and business leaders are doing last-minute work to avoid that scenario.

The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said. 

The beleaguered bank said it is selling 74 loans totaling about $2.6 billion to a subsidiary of Kennedy-Wilson Holdings. The move is part of a plan to pursue strategic asset sales, trim expenses and shore up its balance sheet.

Excluding farms and residential properties, banks accounted for more than 60% of the $3.6 trillion in commercial real estate loans outstanding in the fourth quarter of 2022, with smaller institutions particularly exposed, according to the Federal Reserve's semi-annual Financial Stability Report published last week.

Kyle Bass's expectation of more pain in the office market reflects a more widespread view that the pandemic has driven a semi-permanent shift toward remote and hybrid work that imperils lower quality buildings.

Rising vacancy levels, soaring interest rates and weaknesses exposed by recent bank failures have analysts and investors worried about banks' outsized exposure to high-rise office, apartment and retail properties.