Banks Shake Off CRE Jitters—What This Means for Real Estate Investors & Developers
After months of uncertainty, banks with significant commercial real estate (CRE) exposure are showing signs of stabilization. While challenges remain, S&P Global Ratings has upgraded six banks from negative to stable, signaling renewed confidence in the sector.
For real estate investors and developers, this shift is a key indicator of improving market conditions and greater lending stability—critical factors for financing new deals and navigating upcoming CRE debt maturities.
What’s Driving Bank Stability?
S&P highlights six factors that have strengthened the banking sector, creating new opportunities for real estate professionals:
1️⃣ Economic Resilience: The U.S. economy is holding steady, with 2% GDP growth expected over the next two years and unemployment stabilizing at 4.2%. A strong economy supports CRE demand and investment.
2️⃣ CRE Valuations Finding a Floor: While office properties remain under pressure (down 36% since 2022), the sector’s decline slowed to just 1% in 2024—a sign of stabilization. Multifamily, industrial, and retail valuations improved, reinforcing confidence in non-office CRE investments.
3️⃣ Reduced Office Loan Exposure: Larger banks now hold just 11% of their portfolios in non-owner-occupied CRE, and office loans make up only a low-single-digit percentage of all loans. This reduces systemic risk and minimizes potential banking disruptions.
4️⃣ Improved Asset Quality: While CRE loan delinquencies have ticked up to 1.7%, overall charge-offs remain low at 1.9% over the past two years, indicating controlled losses.
5️⃣ Stronger Bank Balance Sheets: Deposits have rebounded from $18.3 trillion in 2023 to over $19 trillion in 2024, while unrealized losses on securities have declined by $200 billion, further strengthening liquidity.
6️⃣ Continued Profitability: Banks are expected to maintain healthy earnings, with an industry-wide return on equity projected at 10.5% to 11.5% in 2025—a sign that they are well-positioned to weather CRE headwinds.
What This Means for Real Estate Developers & Investors
✅ More Lending Stability: As banks strengthen their balance sheets, financing for CRE projects may become more accessible, especially for well-structured deals in resilient asset classes like multifamily, industrial, and retail.
✅ Opportunities in Distressed Assets: Office properties have seen major price corrections, but signs of stabilization suggest that opportunistic investors could find undervalued assets at a discount.
✅ Refinancing Risks Still Loom: The biggest challenge ahead? $4.5 trillion in CRE loans need refinancing by 2028, some outside the banking sector. This could lead to selective lending and increased demand for alternative financing solutions (private lenders, debt funds, and creative capital structures).
The Bottom Line
While the CRE sector is not out of the woods, stabilizing bank outlooks and improving market fundamentals suggest a more favorable lending and investment environment ahead. Developers and investors who adapt to shifting conditions—by targeting high-performing asset classes and securing strategic financing—will be best positioned for growth in the evolving CRE landscape.
At Dan Kaufman Real Estate, we stay ahead of market trends to identify high-impact real estate investment opportunities. Want to discuss strategies for navigating the shifting CRE market? Let’s connect.