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From Some Quarters, a Calming Message  

Is it time to dial down the DEFCON level over banks’ exposure to commercial real estate?  

It seems to be for at least a small—but geographically distributed—group of regionals. American Banker looked at the quarterly reports and executive commentary on five institutions ranging from $10 billion to $50 billion in assets. Northeast, Northwest, Southeast, or Southwest, they had this in common: Despite “substantial exposure to CRE,” AB says, executives are saying—in so many words—“not to worry.”  

The Office Outlook  

  • While some classifications of CRE have been performing better, or have at least been less problematic, than office, one bank reported a recent positive development there: a paydown of $95 million on three properties.  
  • And in a January 15 earnings call, the CEO of one of the banks—Brent Beardall of Washington Federal—said the recent “decline in long-term [interest] rates narrows the refinance gap for borrowers and thus lowers credit risk for banks.”  

Survey Says … 

RMA’s annual Community Bank Survey found that only 2% of the participating banks strongly agreed that their office real estate portfolio posed a significant risk to their performance over the next year.  

  • Another 20% of the 210 participating banks said they somewhat agreed. Seven percent said they weren’t sure, and the rest disagreed.  
  • Shameless plug: Look for coverage and analysis of the RMA Community Bank Survey results, to be released this month, in upcoming Insiders.   

While different institutions have different downside potential related to CRE, this much is certain: It’s safe to say lenders are being extremely cautious about making new office loans.