Pace of Retreat by Banks from CRE Sector Quickens

The contrast is widening between the return-to-office push by banks and the growth of their commercial real estate (CRE) portfolios. Federal Reserve data indicates that the nation’s banks have nearly $3 trillion worth of CRE debt on their books, while Moody’s Analytics is reporting office vacancy rates of nearly 20% nationwide, breaking the record set in 1991; and although the overall CRE debt grew somewhat last year, “reflecting continued strength in the broader economy,” banks are facing losses, and “some are making no secret of their plans to withdraw” as they build up “large reserves to protect themselves from a wave of losses.” Cited in example is M&T Bank which shrank its CRE loan portfolio by 6%, or $2.3 billion last year; Wells Fargo similarly reduced its exposure to CRE debt by nearly $4 billion, with almost half of the reduction coming in the final months of 2023; and Goldman Sachs lowered its CRE loan portfolio by 10% to $26 billion, planning to watch closely on what mix of disposition activity surfaces in 2024, many acknowledging that ”it’s going to take some time for this [situation] to play out.”