Which Banks Have the Most Commercial Real Estate Exposure?

Understanding which banks have significant exposure to commercial real estate (CRE) is crucial for assessing potential risks within the banking sector, especially given the cyclical nature of real estate markets. Banks play a significant role in financing business properties, making their CRE exposure a key indicator of their financial health. Observing these trends contributes to a broader understanding of the economic landscape and the interconnectedness of financial institutions.

Defining Commercial Real Estate Exposure

Commercial real estate (CRE) exposure for banks refers to the total value of loans extended for properties used for business activities. These properties are typically income-producing, generating revenue through rent or operations. CRE encompasses a range of property types, including:
Office buildings
Retail centers
Industrial warehouses
Multi-family residential buildings (five or more units)
Medical offices
Hotels
Restaurants
Vacant land intended for commercial development

Loans for CRE can take various forms. Permanent loans function similarly to residential mortgages but are for commercial properties, with repayment terms typically ranging from 5 to 25 years. Construction loans finance property development and are generally short-term with higher interest rates, bridging the gap until permanent financing is secured. Bridge loans are also short-term, covering temporary cash-flow gaps while awaiting permanent financing or property sale.

A bank’s CRE exposure includes not only outstanding loan balances but also commitments to lend that have not yet been drawn upon. Each loan type and property segment carries distinct risk profiles that banks evaluate during the underwriting process.

Sources of Exposure Data

Information regarding banks’ commercial real estate exposure is publicly available through various regulatory filings. A primary source is the Consolidated Reports of Condition and Income, known as Call Reports, filed quarterly with the Federal Deposit Insurance Corporation (FDIC). These reports provide detailed financial statements for all FDIC-insured institutions.

Schedule RC-C, Part I, of the Call Report, “Loans and Lease Financing Receivables,” breaks down a bank’s loan portfolio, including loans secured by real estate. This schedule details categories such as construction, land development, other land loans, multifamily residential properties, and non-farm non-residential properties. Schedule RC-R, “Regulatory Capital,” also offers insights into how banks categorize and risk-weight their exposures, including high volatility commercial real estate (HVCRE) exposures.

For larger, publicly traded banks, additional detailed information is available through their quarterly (Form 10-Q) and annual (Form 10-K) reports filed with the U.S. Securities and Exchange Commission (SEC). These SEC filings often contain management’s discussion and analysis of financial condition and results of operations, providing a narrative alongside the financial data, sometimes with specific breakdowns of CRE exposure by property type or geographic concentration. While these reports provide valuable data on amortized costs, they may not always explicitly report the fair value of loans collateralized by commercial real estate with granular detail.

Categories of Banks with Exposure

Banks with significant commercial real estate exposure vary by size, business model, and strategic focus. Large national banks may hold substantial CRE loan amounts, but due to portfolio diversification, these loans represent a smaller proportion of their total assets. For example, large banks might have around 2% of their total loans in office CRE, while smaller and mid-sized banks might have approximately 4%.

Conversely, regional and community banks often have a higher proportion of their loan portfolios dedicated to CRE, making it a more concentrated risk. These institutions typically serve local markets where real estate lending is a primary activity. Regulatory bodies, including the Federal Reserve and FDIC, closely monitor banks for CRE concentration levels.

Regulators have established guidance for heightened supervisory scrutiny. A bank may face this if its total loans for construction, land development, and other land represent 100% or more of its total capital. Another threshold is met if total CRE loans, including those for multifamily residential and non-farm non-residential properties, together with loans to finance CRE construction and land development activities not secured by real estate, represent 300% or more of total capital. This 300% threshold also considers if the CRE loan portfolio has increased by 50% or more during the prior 36 months. Exceeding these thresholds suggests a need for enhanced risk management practices, including robust underwriting and stress testing.

Analyzing Bank Exposure Metrics

Once commercial real estate exposure data is obtained, several key metrics and ratios help assess a bank’s financial health and concentration risk. A prominent metric is the CRE loan-to-capital ratio, which compares a bank’s total CRE loans to its total capital. This ratio, along with the concentration ratio for construction and land development loans (100% or more of total capital), are key indicators of potential risk.

Another important indicator is the level of non-performing CRE loans (NPLs). A loan is classified as non-performing when the borrower has not made scheduled payments for a defined period, often 90 days for commercial loans. An increase in NPLs signals potential stress, indicating a greater likelihood of loan defaults and credit losses. Banks are required to maintain loan loss reserves, which are provisions set aside to cover anticipated credit losses on their loan portfolios.

The adequacy of these loan loss reserves specifically allocated to CRE loans is a crucial factor. For instance, recent data indicated that some banks held approximately $1.40 in reserves for every dollar of delinquent commercial real estate loans, a decrease from previous periods. This ratio can fall even lower, with some large banks holding around 90 cents in reserves for every dollar of CRE debt that is at least 30 days late. A lower reserve-to-delinquent loan ratio suggests less of a buffer against potential losses. Analyzing these metrics provides a more complete picture of a bank’s exposure and its preparedness for potential downturns in the commercial real estate market.