- Major US banks have reduced their exposure to commercial real estate (CRE), thanks to more diversified loan portfolios and revenue streams.
- Regional and community banks hold most CRE loans and are actively managing the risk by working with borrowers to avoid defaults.
- A wave of loan maturities this year will test the sector as borrowers face higher refinancing costs.
- Landlords are offering rent deals and upgrading buildings to attract tenants in struggling markets.
Big Banks Have Moved On
Commercial real estate used to dominate earnings calls. Today, according to Marketplace, it barely gets a mention.
Despite ongoing issues in the office sector, large banks don’t seem worried. Tom Collins of West Monroe said that these institutions rely on more than CRE for earnings. They’ve also reduced their lending in the sector, giving them flexibility smaller banks don’t have.
Smaller Banks Still Carry The Risk
While big banks stepped back, regional and community banks stayed active in CRE lending.
They now hold most of the outstanding commercial real estate loans. Many of these properties, especially office buildings, still sit vacant. Instead of triggering defaults, local banks are working with borrowers. Their goal is to keep collecting payments, avoid write-offs, and preserve long-term client relationships.
CRE Loans Are Maturing Fast
A major challenge now lies in maturing loans. Many were issued when interest rates were near historic lows.
As these loans come due, property owners must refinance at significantly higher rates. Xander Snyder of First American says this shift will force decisions. Many borrowers may opt to sell their buildings. While painful, this can help reset the market by transferring assets to more financially stable owners.
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Owners Offer Perks To Fill Space
To attract tenants, many landlords are sweetening the deal.
They’re offering concessions like one to three months of free rent or building out tenant spaces. According to Trepp’s Tom Taylor, this trend isn’t limited to office properties. Retail spaces and apartment landlords are doing the same. These incentives help reduce vacancy but reflect the ongoing struggle to maintain occupancy.
Location Still Matters
Market conditions vary widely by location.
Major coastal cities like New York are seeing stronger performance, while cities like Charlotte and Atlanta continue to report high vacancies. In Minneapolis, Sunrise Banks CEO David Reiling says demand is growing in mixed-use areas that combine retail, dining, and office space.
These areas are attracting investment and loan interest from local banks looking for opportunity in a challenging market.
What It Means Going Forward
Big banks have largely avoided CRE risk by stepping back. Smaller banks remain engaged — and exposed.
But they’re also seeing opportunity. As buildings change hands and property owners adjust to higher rates, new investments could reshape the sector. Community lenders are positioning themselves to fund that transition — one deal at a time.
