Commercial lending

The Federal Reserve said that banks reported tighter standards and continued weak demand for loans in the second quarter, extending a trend that began before recent stresses in the banking sector emerged.

The companies have requested an extension of the floating-rate loan, which matured in July, according to a servicer report.

Several community banks noted an uptick in problem loans in second-quarter earnings reports. Small lenders should brace for more of this, industry observers noted.

The Wall Street giant has more than $14 billion of real estate investments, and it took a $1.15 billion hit during the second quarter from writedowns of those bets.

While multifamily late payments were flat, hotel properties continued to improve but office performance deteriorated significantly from the first quarter, the Mortgage Bankers Association said.

The bank's allowance for losses on commercial real estate loans jumped to $3.6 billion in the second quarter — up 64% from a year earlier. The negative forecast could portend trouble for smaller banks that have bigger exposure to the office sector.

Mayor Michelle Wu is offering hefty tax breaks to companies to turn offices into housing, the latest example of a city seeking to address the challenges of remote work hitting downtowns and a lack of affordable residences.

High vacancy rates in U.S. office markets and the impact of rising interest rates on property values in Europe have prompted a brutal selloff in publicly traded real estate stocks and bonds.

Cullen/Frost, Columbia, Synovus, Valley National and Associated all have relatively large exposures to the office sector, which has been hurt by the popularity of remote work. Their executives point to factors that offer protection, including the geographic composition of their portfolios and the types of buildings that serve as collateral.

The amount of distressed assets rose 10% in the first three months of the year, according to a new report from MSCI Real Assets.

The construction manager for the beleaguered New Jersey mall is suing JPMorgan Chase & Co. to recover more than $30 million of unpaid work and accrued interest.

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.