New Study Highlights the Scale of Regional Bank Retreat in Commercial Real Estate Lending

A new report reveals the unprecedented scale of the retreat in commercial real estate lending by regional banks following three significant bank failures.

Stark decline in lending: During the second quarter, regional banks were responsible for just 25% of all new CRE loans valued at $2.5M and above, indicating a massive 900-basis-point drop from the first quarter. This massive dip is the most significant quarterly market share decline since the capital markets research firm MSCI began its analysis in 2011.

The catalyst: This dramatic shift was primarily triggered by the sudden closure of Silicon Valley Bank, Signature Bank, and Silvergate Bank by regulators within a span of three days in mid-March. The ensuing perception painted smaller banks as potential risks. These closures occurred shortly after regional banks recorded their highest share of 34% in CRE loans. A year before, their market share was at 23%, and a decade earlier, they constituted a mere 8% of CRE loans.

Debt dilemma: According to MSCI Chief Economist Jim Costello, the debt markets experienced excessive liquidity in 2021 and early 2022 but are unlikely to return to those levels. Over half of the $400B in loans maturing this year are still unpaid, with around 40% of these loans linked to CMBS, particularly office properties.

➥ THE TAKEAWAY

Lending uncertainty: The retreat of regional banks from the CRE lending space has broader implications, especially for small businesses and markets. Nonbank lenders might absorb some of the void left by these banks, but they cannot fully replace the unique role regional banks play in supporting local businesses and economies. This dynamic poses concerns for the future stability and growth of CRE lending in smaller markets.

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Florida Surpasses New York to Claim the No. 2 Spot in Most Valuable Housing Markets

According to a recent report by real estate marketplace Zillow, Florida has surpassed New York as the second most valuable housing market in the US.

Magic City shines: Famed for its pristine beaches, iconic Art Deco aesthetics, and home of soccer legend Lionel Messi, Miami has experienced an 86.6% surge in housing value, elevating it among the top five U.S. housing metros. California continues to hold its premier status with a residential housing market value of $10.243 billion. Meanwhile, Florida clinches the second position with a value of $3.810 billion, with New York trailing slightly at $3.650 billion.

Resilient growth: The U.S. housing market has grown by 49% since the pandemic's onset, reaching a staggering value of $52 trillion. While a temporary slowdown occurred between July 2022 and January 2023 due to rising mortgage rates, the market rebounded with an increase of over $2.6 trillion in the past year. This resurgence is primarily attributed to new construction projects introduced during the recent spring and summer.

Florida's dominance: Of the six markets where housing has gained the most value since the start of the pandemic, four are in Florida: Tampa (+88.9%), Miami (+86.6%), Jacksonville (+82.4%) and Orlando (+72.3%). The allure of warm weather, lower taxes, and the adaptability afforded by remote work have played a role in driving population growth in Florida.

➥ THE TAKEAWAY

Market momentum: The ascent of Miami and other Florida cities in the housing value hierarchy signals the reshaping of the U.S. real estate landscape. The focus of builders on higher-density homes to manage increased costs and fulfill the market demand indicates a strategic adaptation to the burgeoning demand in valuable metros, offering insights into evolving market dynamics and urban development strategies.

📖 Read: While the Fed's decision to maintain interest rates may be a turning point for CRE, all eyes are on the outcome of the November Fed meeting for more clarity.

▶️ Watch: Glenn Kelman, the CEO of Redfin, appeared on Squawk on the Street to talk about the influence of rising mortgage rates on the housing sector and whether the Fed's strategy of increasing interest rates is achieving its desired outcomes.

🎧 Listen: In this episode of CBRE’s The Weekly Take, experts discuss the importance of strategically located industrial to optimize labor, supply, automation, and costs while choosing between leasing/owning.

Wells Fargo Drops $550 Million for Vacant Neiman Marcus Space at Hudson Yards

Wells Fargo is set to acquire Neiman Marcus's vacant space at 20 Hudson Yards for $550 million marking one of the year's largest CRE transactions in Manhattan.

Some background: Occupying 400k SF over three floors, the space was once poised to be the retail crown jewel of the $25 billion mixed-use project on Manhattan’s west side. However, the onslaught of online shopping, heavy debts, and the COVID-19 pandemic forced Neiman Marcus into bankruptcy and eventually closure in May 2020, marking a setback for Hudson Yards’ principal developer, Related Companies, and its partner, Oxford Properties.

Transformative plans: Wells Fargo plans to convert the retail space into offices. The conversion of properties from office to residential use is a trending topic in Manhattan, but 20 Hudson Yards is an exception, aiming to diversify the area with luxury retail and dining options alongside its office spaces. While office leasing remains uncertain, newer developments continue to attract tenants.

Hudson Yards reimagined: Wells Fargo already owns significant holdings in Hudson Yards, including a majority stake in an observation deck and 500KSF of office condos. This acquisition reaffirms the bank's strong presence in the area, positioning it as a key player in the development and transformation of the Hudson Yards district.

➥ THE TAKEAWAY

Banking on transformation: This deal shines a light on the resilience of NYC’s office space market amidst the prevalent remote work environment. With a surge in conversions of office spaces to residential units in Manhattan, Wells Fargo's innovative approach to converting retail to office space stands out in the current landscape of hybrid and remote work norms. The acquisition not only fortifies Wells Fargo’s dominant presence in Hudson Yards but also reinforces its bet on demand for the newest and best-equipped office towers in the Big Apple.

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