Bank CRE Loan Delinquencies Hit 10-Year High

US banks are facing a rising tide of bad CRE loans, with delinquencies hitting 1.57% in Q4, the highest level in a decade, according to data from the Federal Reserve.

This marks a notable shift in the commercial property market, where banks have been slow to take losses, despite mounting distress, per CoStar.

By The Numbers

With over $3T in CRE loans outstanding at the close of 2024, delinquent loans add up to over $47.15B. This is nearly twice as high as the $25.08B in delinquent loans recorded a decade ago, showing the growing strain on the sector.

Delinquencies have been rising steadily since Q322, but banks have been reluctant to charge off loans despite rising defaults.

Reluctant to Take Losses

Even as delinquency rates climb, banks have resisted writing off bad loans. In Q4, banks charged off just 0.26% of their CRE loans, a level of chargeoffs that has remained consistent for five consecutive quarters.

The $7.8B in loan charge-offs reveal that banks are still holding onto hopes that troubled loans can eventually be salvaged or refinanced.

Office Still Struggling

Michael S. Barr, Vice Chair for Supervision at the Federal Reserve, emphasized the need for vigilance in the office segment. Refinancing remains a major challenge as maturing loans come due, with borrowers struggling to secure new financing.

With market conditions showing few signs of improvement, experts warn delinquency rates could continue to climb. More difficult decisions may be on the horizon in the coming months.