Banks’ office exposure increasingly in focus amid volatility
March 30, 2023
- Jacob Rowden
Banks comprise the majority of the largest office lenders
|Rank||Lender||Total volume* ($B)||Total AUM ($B)|
|2||Bank of America||$16.7||$2,418|
|13||PGIM Real Estate||$5.4||$1,200|
|16||New York Life||$5.1||$593|
Source: JLL Research
Note: Total volume reflects lending on U.S. office assets from 2018-present
- As financial markets continue to absorb the impact of the failures of Silicon Valley Bank and Signature Bank, banks’ commercial real estate investments have come under increasing scrutiny in recent weeks.
- While banks are not particularly prominent among buyer pools for office, they have been responsible for 48% of office lending in the past five years, leaving them particularly vulnerable to sharp declines in value that have left some office loans with high debt-to-value ratios.
- Office REITs’ net asset values have fallen more than 30% since peaking in the first half of 2022, and trade prices are further impacted by a record high discount to NAV in excess of 50% in recent months, pointing to additional valuation pressures on the horizon.
- As banks exercise greater caution toward commercial real estate, lender spreads are widening. However, shifts in market perceptions over the outlook for interest rates in the remainder of the year are helping to counteract widening spreads.