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Community Bankers on Commercial Real Estate 

Everyone knows about the dismal state of office real estate, but what about other commercial real estate? After all, while office space may be dominating headlines, it only accounts for 15-20% of the market. 

A panel of community bank chief credit officers recently told RMA that their CRE loan portfolios have been bolstered in part by hospitality properties that are outperforming even their pre-pandemic levels. And retail properties have been surprisingly resilient, particularly grocery-anchored centers. Industrial warehouse, medical office, and multifamily housing properties also stand out as positives. 

As for office properties, the community bankers—speaking at RMA’s Annual Risk Management Virtual Conference—said they were staying away from loans for downtown office buildings. And they’re considering loans for office properties outside of downtowns only if they have very strong sponsors and tenants. 

Rising interest rates are a concern for commercial real estate broadly—a change from the days when historically low rates made the numbers work for nearly every project, the community bankers said. 

Despite these issues, credit quality remains strong, as shown by the relatively low level of delinquency and losses. Bankers have also seen the pendulum swing back in their favor recently with potential borrowers that are more likely to agree to stricter underwriting criteria and recourse lending terms. 

The bankers also offered some words of advice for their community banking peers. Among their tips: 

  • Don’t rely on backward-looking metrics based on low-interest-rate environments to manage portfolio risk. 
  • Trust your instincts if you sense something odd about a borrower’s behavior. 

Want to learn more? Check out “The CRE Landscape for Community Banks” in The RMA Journal.