Big Banks Pulling Back On New CRE Loans As Interest Rates Rise

After setting records for commercial real estate lending earlier this year, the country's biggest banks are changing course and planning a pullback, citing weakening demand and concerns about the effects of higher — and still increasing — interest rates. 

Wells Fargo & Co., Bank of America Corp., Morgan Stanley, Goldman Sachs Group and JPMorgan Chase & Co. are all tightening their purse strings when it comes to commercial real estate, issuing fewer new loans and having stricter terms on those they do issue, Bloomberg reported. 

The drop-off is noticeable because in the first half of this year, U.S. banks lent $316B in net new commercial real estate loans, according to Federal Reserve data cited by Bloomberg. The lending boom represented a 172% increase over H1 2021 numbers and came as higher interest rates made borrowing twice as expensive. 

Commercial lending from the biggest banks could be down as much as 50% in the latter half of this year compared to the first if the current pace holds, Eastdil Secured President Michael Van Konynenburg told Bloomberg. 

Projections from the Mortgage Bankers Association anticipated that commercial and multifamily lending could fall to $733B this year, an 18% drop from 2021, Bisnow has reported.

These banks have been asked to slow down on lending to CRE, especially on office properties, Newmark Head of National Loan Sales Brock Cannon told Bloomberg.

“The government is trying to get their arms around everything to see how impactful this is going to be; how severe will the losses be,” Cannon told Bloomberg.

Office is often singled out as the most vulnerable asset class at the moment, mainly due to the lingering uncertainty about whether workers will ever return to their workplaces at a large enough volume to sustain the property type.