- 59 of the top 155 banks face significant exposure, with some exceeding 600% of their total equity.
- The refinancing of CRE loans originated in low-rate environments from 2019-2021 poses further risks
- Dime Community Bank leads with a staggering 602% CRE exposure-to-equity ratio.
While interest rates have slightly eased, many banks are grappling with unrealized CRE losses due to declining commercial property values and the repricing of older loans in today’s higher interest rate climate, as reported by GlobeSt.com. According to FAU, these dynamics impact CRE mortgages, construction loans, and unused commitments tied to CRE financing.
“The imminent refinancing of loans, combined with more commercial properties selling at a discount relative to pre-pandemic values, has exposed vulnerabilities in the banking system not only to commercial real estate mortgages, but also to commercial real estate construction loans and unused commitments to fund commercial real estate mortgages and loans,” said FAU.
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Top 10 Most Exposed Banks
Based on US Banks’ Exposure to Risk from Commercial Real Estate Screener, these banks have the highest CRE exposure relative to equity:
- Dime Community Bank – 602%
- Eaglebank – 571%
- Bank OZK – 566%
- Live Oak Banking Company – 550%
- Merchants Bank of Indiana – 539%
- Flagstar Bank – 539%
- Servisfirst Bank – 538%
- First Foundation Bank – 513%
- Provident Bank – 488%
- First United Bank and Trust Co. – 478%
Why This Matters
The banking system’s exposure to CRE could have broader economic implications, especially as many loans reprice or mature in the coming years. Declines in property valuations and increased borrowing costs create a precarious situation for lenders and borrowers, potentially leading to regulatory interventions or heightened scrutiny for highly exposed institutions.
Looking Ahead
Analysts caution that these banks’ financial health will depend on how effectively they navigate upcoming loan repricings, manage CRE portfolio risks, and adapt to the evolving regulatory landscape. As hundreds of billions in CRE loans face refinancing, the banking sector’s ability to weather the storm will be a critical focus in 2025.
