Global Macro Views

Commercial Real Estate Debt Matures Amidst Policy Shifts

Global Macro Views Blog
April 2024

Are challenges ahead for regional banks due to their exposure to commercial real estate loans?

The Debt Wall

Total Commercial Mortgages Volume Maturing

The Debt Wall

The swing in the Federal Reserve’s (Fed) policy, from a low-for-long policy rate until 2022 followed by a rapid firming, poses significant problems for the commercial real estate (CRE) sector and its lenders. Commercial property values have fallen, especially for office space, as the rise of remote work has reduced demand and higher interest rates have made financing more expensive. Outstanding CRE and multi-family mortgage debt stands around $4.5 trillion as of February 2023, with about $1.2 trillion of that set to mature by the end of 2025. Many CRE loans were written when rates were much lower and will likely be rolled over at higher terms and with stricter standards. Indeed, according to the Fed’s survey of loan officers, standards on such lending began firming as soon as the Fed pivoted in 2022. While the Fed’s next rate action will likely be a cut, we think action will be delayed until inflation is perceived to be steadily on track to reach its 2% goal in the second half of the year.

This may prove challenging for regional banks, where CRE exposure is more heavily concentrated. CRE debt makes up 44% of total loans at regional banks versus only 13% at large banks, according to Federal Reserve data. Strong linkages between CRE and regional banks could harm their earnings, which were under pressure to begin with. Recent FDIC data showed profits in the US banking sector fell almost 45% year on year in the final quarter of 2023. 


All investments involve risk, including the possible loss of principal. Certain investments have specific or unique risks. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be, interpreted as recommendations. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

Indices referred to herein are used for comparative and informational purposes only and have been selected because they are generally considered to be representative of certain markets. Comparisons to indices as benchmarks have limitations because indices have volatility and other material characteristics that may differ from the portfolio, investment or hedge to which they are compared. The providers of the indices referred to herein are not affiliated with Mellon Investments Corporation (MIC), do not endorse, sponsor, sell or promote the investment strategies or products mentioned herein and they make no representation regarding the advisability of investing in the products and strategies described herein. Investors cannot invest directly in an index.