CMBS Provides Insight into Banks’ Loan Book Pressures

According to the Wall Street Journal, 14% of U.S. commercial real estate (CRE) lending is securitized in commercial-backed securities (CMBS), making default rates and building valuations available as a proxy for less accessible information on banks’ balance sheet holdings of CRE. Of the $35.8 billion CMBS loans that matured in 2023, only 26% were paid off in full while others extended or were transferred to a special servicer. When transferred, the underlying properties get a fresh appraisal. Among a group of 220 properties recently transferred and reappraised the average valuation decline for offices was 40%. Banks’ holdings might fare better, but pending maturities are raising concerns of impact on shareholders similar to New York Community Bancorp’s recent disclosure of CRE exposure.

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