Office Property Value Decline Hits Banks

Office Property Value Decline Hits Banks

Falling Office Property Values Take Bigger Toll on Banks

The office asset class continues to face significant challenges due to a variety of factors such as tenant downsizing, hybrid work schedules, corporate layoffs, and economic uncertainty. This shift in demand has begun to influence CMBS (Commercial Mortgage-Backed Securities) coming to maturity, leading to increased negotiations between lenders and landlords for payment extensions and new loan terms. 

 Distressed office properties are struggling to find buyers, resulting in a significant downturn in that market.

In addition to the office market struggles, consumer credit card delinquency rates have risen in the second quarter of the year. Regional banks are at risk of facing any defaults and devalued properties. Goldman Sachs, , has already recorded a $485 million “impairment” on its CRE investments.

To prepare for the decline, M&T Bank has increased its loan loss provision to $150 million in the second quarter of 2023, a 25% increase from the previous quarter. Both M&T Bank and Citizens Bank have experienced an increase in late commercial loan payments from borrowers, leading to higher net charge-offs. M&T's net loan charge-offs rose by 81% to $127 million on a quarterly basis, while Citizens' net charge-offs increased by 14% to $152 million.

Citizens Bank currently holds an $835 million office loan portfolio, with $152 million of it situated in Manhattan. However, the bank is still actively working to reduce its exposure to the office market.


Original publication credit: Costar

Image credit: American Banker

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