Banks Report Continuing Issues with Commercial Real Estate Loans

Banks continue to see an increase in delinquencies on commercial real estate (CRE) loans as interest rates continue to rise and work-from-home policies create empty workspaces. As demand for office space decreases, borrowers have begun to default on their loans, forcing banks and lenders to sell their loans at significantly lower rates or engage in other potentially costly and time-consuming workouts.

In reports for the third quarter of 2023, many banks show significant losses, largely due to CRE loans. Morgan Stanley reported setting aside $134 million for credit losses, stating that this was primarily due to “deteriorating conditions in the commercial real estate sector,” according to an article from Yahoo!,

Other institutions, like Bank of America, have reported that their loans increased as well. Bank of America’s nonperforming loans increased to nearly $5 billion in the third quarter from $4.27 billion in the second quarter. They attributed this increase to their CRE portfolio, as reported by Yahoo!.

As working from home became the norm as a result of the pandemic, many businesses have struggled to incentivize employees to return to existing office spaces. Borrowers are finding it difficult to refinance their CRE loans as property values have declined and interest rates have risen.

As a result, many borrowers are defaulting on their loans as they are unable to continue financing their vacant office space. For borrowers who have loans out for properties they are unable to afford, filing for bankruptcy is an option to consider. Chapter 11 bankruptcy can help restructure a business by forcing creditors, like suppliers, banks and landlords, to accept reduced payments or payments over time while allowing the business to continue operations.

At Sader Law Firm, each qualified attorney is routinely in court on these types of matters throughout the states of Missouri and Kansas, including all bankruptcy courts. If you have questions about your CRE debt or are considering filing for bankruptcy, contact Sader Law Firm at (816) 561-1818 for a free phone consultation.