Towers Half-Empty, Small Banks Not on the Hook

Contrary to popular belief, local and regional banks do not hold 70% of US CRE debt, as previously reported. They hold a much lower percentage, around 32%. 

Towers Half-Empty, Small Banks Not on the Hook

Contrary to popular belief, local and regional banks do not hold 70% of US CRE debt, as previously reported. They hold a much lower percentage, around 32%. 

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Good morning. NYC commercial real estate sales plummeted 43% to $12.8B in 1H 2023, led by three key trends. Small banks hold not 70%, but ~32% of US CRE debt—busting a common myth. Meanwhile, in Austin, Blackstone now reigns as the top commercial property owner.

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Three Trends Impacting New York City Commercial Real Estate

Three Trends Impacting New York City Commercial Real Estate

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The New York City commercial real estate market saw a 43% drop in investment sales to $12.8 billion in 1H 2023, according to Ariel Property Advisors. This decline is attributed to shifts in office tenant behavior, tighter multifamily regulations, and higher capital costs.

Letting go and holding on: Office occupancy rates in NYC lingered around 50% of what they were pre-Covid, causing the dollar volume of transactions to decrease by 48% YoY. While some major landlords relinquished their assets, others held onto properties with robust fundamentals. A notable example of resilience is SL Green's strategy for 245 Park Avenue: holding on and securing new investments at a slightly reduced rate than its original 2017 purchase.

Office occupancy 50% of pre-pandemic levels

With office occupancy rates in NYC hovering around 50% of pre-Covid levels, the dollar volume of office transactions fell to $2.4B in 1H23.

Multifamily divergence: Multifamily investments saw a mixed performance. The dollar volume first reduced to $1.1 billion in 1Q 2023 but then surged by 242% in 2Q 2023. Performance diverged based on whether assets were free market, rent stabilized, or affordable housing. While free market properties benefited from NYC's favorable circumstances, rent-stabilized buildings witnessed price reductions. In contrast, affordable housing captured 34% of total multifamily investments, with mission-driven investors finding it attractive.

Multifamily dollar volume dipped to $1.1 billion in 1Q 2023 but soared 242% quarter-over-quarter to $3.9B in 2Q23.

Land transactions: Land sales in NYC diminished by 30% YoY in 1H 2023, with reasons ranging from the expiration of the 421a tax abatement program to escalated construction costs and slower condo sales. Yet, some developers, like Rockrose, identified opportunities in this decline, particularly in areas of Queens where rezoning has occurred.


Smart money comes back: Looking ahead, private lenders may fill the void left by regional banks under greater regulatory scrutiny. Mortgage maturities are likely to prompt further repricing of office and rent-stabilized multifamily assets, offering discounted investment opportunities. Positive signs, such as a new tax relief program for developers announced by the governor and strong economic indicators in NYC, suggest that abundant smart capital will likely return significantly within the next six to 18 months.


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Small Banks Aren’t Holding 70% of US CRE Debt

No, Small Banks Aren’t Holding the Bag on Half-Empty Towers

Most US CRE debt is owed to lenders other than domestically chartered commercial banks (Jason Henry/Bloomberg)

Contrary to popular belief, local and regional banks do not hold 70% of US CRE debt, as previously reported. They hold a much lower percentage, around 32%.

The rumor mill: This persistent misconception has caused concern over the financial stability of small and midsize banks, particularly in light of the challenges faced by CRE due to hybrid work and higher interest rates. However, data from the Federal Reserve reveals that while small banks hold the majority of CRE loans among domestically chartered commercial banks, most US CRE debt is owed to other lenders.

The real numbers: As of March 2023, domestic depository institutions held 47% of CRE debt, corresponding to approximately 32% of the total debt held by banks outside the top 25. This is significantly less than the previously propagated 70% figure. While still a substantial amount, no other class of lender comes close to the banks in terms of CRE debt.

CRE lending by bank size

Concentration at smaller banks: In comparison to the 25 largest banks, smaller banks have a higher concentration of CRE loans as a percentage of total assets. Banks in the $100M–$10B asset range, commonly known as community banks, have the highest concentration. These banks typically serve smaller cities or specific communities. Their loans are often directed to a variety of properties, like retail, warehouses, offices, hotels, campgrounds, marinas, mini-storage facilities, and vacation rentals.

Smaller banks are more dependent on CRE

Shifting market dynamics: The share of CRE loan originations from local and regional banks has more than doubled since late 2018, increasing from 15–31%. This growth is primarily attributed to deal activity shifting to smaller markets typically underserved by other lenders. Smaller banks took advantage of economic shifts that caused distress in big urban office markets, rather than being negatively impacted by them. Additionally, most of their loans originated after 2019, meaning relatively few will mature soon.


Half-empty promises: Though smaller banks have significant CRE debt, the problem of half-empty downtown office buildings impacts more than just small banks. Economic shifts and a decline in CMBS are contributing factors. Small banks are adapting and finding opportunities in smaller markets, but their dependence on CRE lending poses challenges in the current interest rate environment. Addressing occupancy issues in downtown office buildings is a broader challenge throughout the sector.


Blackstone's Massive Presence in Austin's Commercial Property Scene

A photo illustration of Blackstone CEO Stephen Schwarzman

TRD: A photo illustration of Blackstone CEO Stephen Schwarzman (Getty)

In the bustling city of Austin, where live music meets tech innovation, Blackstone (BX) has quietly claimed the title of the city's largest commercial property owner, boasting a portfolio of approximately 9M SF of commercial assets.

Industrial ambitions: A key area of expansion for Blackstone has been the industrial sector. Through its subsidiary, Link Logistics, the firm is working on notable projects like a $28M complex in Round Rock and Settlers Grove, a warehouse project worth $38M. In Travis County, close to Tesla’s massive manufacturing hub, Blackstone is creating an expansive industrial park spanning 127 acres.

Class is in session: In 2022, Blackstone didn't just ring the bell; it bought the whole school—or at least the student housing. With a strategic $13B acquisition of American Campus Communities, the firm effectively enrolled in the student housing game, adding over 200 properties nationwide, six of which are cozily situated near the University of Texas at Austin.


Big picture: While Blackstone stands as Austin's unofficial landlord-in-chief, the city’s commercial real estate roster is far from a one-player show. Other major players include Cousin Properties and Simon Property Group. Notably, the top local entity is HPI Real Estate Services & Investments, which manages 3.6 million square feet within Austin. This mix of local and international stakeholders highlights Austin's dynamic growth and attraction in the real estate world.


📖 Read: Find out why Extell, one of NYC’s biggest developers, is in a heated legal battle over 18 inches of real estate space—and what air conditioners have to do with it.

▶️ Watch: Ozmo, Skyline Robotics' window-washing robot, partnered with Platinum and The Durst Organization to clean major Manhattan buildings.

🎧 Listen: In this episode of Bisnow Reports, Van Leeuwen Ice Cream co-founder Ben Van Leeuwen discusses the brand's expansion, handling inflation, and how US consumer habits align with high-end ice cream.


  • Office exodus: 10% of US office buildings are responsible for 80% of occupancy decreases since the pandemic, according to CBRE.

  • Warehouse chic: Google (GOOGL) is repurposing old warehouses instead of building new ones, shifting to sustainable growth.

  • Foul play in Canada: Ontario's auditor general finds Toronto's Greenbelt land opening process favored two developers. Oops.

  • Brooklyn's building boom: Clipper Realty secured a $123M construction loan for mixed-use development in Crown Heights for 240 apartments, retail units, and a parking garage.

  • New bet on hotels: Dan Sundheim's D1 Capital Partners reduced tech stock holdings and increased investments in a major hotel chain and real estate stocks in Q2, as per a 13F filing with the SEC.

  • Bond mis-selling: UBS will pay $1.4B to settle a US regulatory investigation regarding the alleged improper sale of residential mortgage bonds before the 2008 financial crisis.

  • Cash crunch: Icon Realty Management faces a cash crunch on a $145M portfolio of loans for rent-stabilized buildings in NYC and Brooklyn, with $28M in debt backed by 5 properties.

  • Spiraling success: The Hudson Yards Spiral office tower adds three tenants, totaling 112KSF and bringing occupancy to 75%.

  • Fiscal folly: Howard Hughes Corp. (HHC) saw its credit rating drop to B as weakened earnings and higher debt levels pose challenges for development projects.

  • Millennial demand: Demand for high-end apartment rentals is surpassing other segments, with Class A vacancies rising by 30 bps in 2Q22.

  • Banks face higher costs: Regulatory changes may increase capital charges for large banks, leading to higher commercial mortgage rates and potential defaults.

  • Proptech partnerships: Proptech players rush to form licensing deals with chatbot makers, accessing LLM technology for faster leasing processes.

  • Shining bright: First Solar is investing $1.1B to complete a new solar module manufacturing facility in Louisiana by 2026.

  • Positive news: In Q1 2023, net apartment demand returned to positive territory after three consecutive quarters of negative absorption.

  • Development pause: Leadlease Group has halted construction on its $1.2B Hayes Point office and apartment project in San Francisco, its largest project in the Americas.


Median rent-to-income ratios inch up to 23.1 percent in market-rate apartments

Median incomes for new lease signers increased by 17.1% between 2020 and early 2023, reaching about $77,000. The rent-to-income ratio rose slightly from 22.8–23.1%, returning to 2011 levels. Final 2023 numbers are expected to be slightly lower as income growth outpaces rent growth.

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