Bank OZK, the $43.2B-asset lender long known as a go-to source for major construction loans, wanted a smaller real estate book. A deluge of money into the real estate debt market is delivering one — faster than the bank planned.
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Over the past 12 months, the bank’s Real Estate Specialties Group, which makes large, low-leverage loans to developers nationwide, mostly for new construction, took in $9.2B in repayments and made $5.2B in new loans, according to management comments released Tuesday with the bank’s third-quarter earnings.
Total commitments in the group, known as RESG, are down $9.1B from their March 2024 peak to $25.4B. Its overall profit in the third quarter was $164.3M, a 9% drop year-over-year. Its shares closed up 4.2% at $48.09 on Wednesday.
The bank said abundant debt capital is squeezing RESG from both directions.
Developers have struggled to raise equity, which has held back construction starts. The deals that do get funded attract a throng of competing lenders. Meanwhile, plenty of debt is helping existing borrowers refinance or sell and pay off Bank OZK. Both trends have held up even after the Federal Reserve raised its benchmark rate in September.
Debt markets are flush with liquidity, Bank OZK President Brannon Hamblen said on a call with analysts Wednesday, and “that makes life difficult for our originators, very competitive on the origination side, but it creates liquidity on our legacy portfolio side and is generating a lot of repayments there.”
That competition extends well beyond Bank OZK’s Little Rock, Arkansas, headquarters.
Debt funds have supplanted banks and insurers as the top sources of CRE debt, and there are “an abundance of debt funds willing to work with people” on troubled properties, MSCI’s Jim Costello told Bisnow.
The payoffs aren’t slowing. After almost $1.7B of RESG loan repayments in the third quarter, Bank OZK took in another $690M in payoffs and paydowns in the first 19 days of October. Some that it didn’t expect until next year may arrive this quarter instead, which led it to trim its 2026 loan growth forecast to 3% to 5%.
Fourth-quarter repayments could be at or near a record, the bank said, and it expects them to stay elevated through 2027.
The shift suits the bank’s strategy.
Bank OZK has said it wants to keep growing while materially reducing its loan concentrations. RESG accounted for 45.2% of the bank’s $34.1B in loans at the end of September, down from an all-time high of 70%.
Its outstanding CRE loans are now below 300% of its capital, the level at which regulators give banks closer scrutiny. The bank expects its corporate and institutional banking unit, which lends to midsized and large companies, to overtake RESG in size sometime in 2027.
That’s a sharp turn for a lender that made more construction loans than JPMorgan Chase or Wells Fargo as recently as 2023, according to MSCI data. RESG originations peaked at $13.8B in 2022 and have fallen every year since, to $7.2B in 2023, $5.4B in 2024 and $5B in 2025. The group originated $3.6B through the first nine months of this year.
Bank OZK has also been cutting its losses on problem loans since ending 2025 with its highest loan losses in 15 years. Its foreclosed assets rose to $420M at the end of September, from $293M in June and $79M a year earlier. The largest addition was a Boston life sciences property the bank took over after a pending sale fell through, forcing it to write off $37.3M.
CEO George Gleason said the bank won’t rush to sell, aiming to “not take losses you don’t need to take.”
The bank’s largest loan got a longer runway. Earlier this month, Citi analysts called a roughly six-week extension on Bank OZK’s $915M construction loan for IQHQ’s RaDD life sciences campus in downtown San Diego a sign of distress, and the bank’s shares fell more than 5%. On Oct. 9, the sponsor and mezzanine lender put in another $100M, bringing their total investment in the project to about $1.23B, and Bank OZK extended the maturity date to December 2029.
Gleason said the short extension gave the equity partner and mezzanine lender time to agree on how they would handle future capital contributions.
“We view that 45-day extension as incredibly positive,” he said.
Gleason called RaDD “an absolutely great asset” that will eventually lease up. The vast majority of its 1.7M SF of lab and office space is empty after the project delivered in 2024.
“It’s not a question of if, it’s just a question of when,” he said.
Hamblen, the bank’s president, was more measured, acknowledging that “lab demand is not what it was.”
“We’re not all the way through this challenging CRE cycle, but we’re a long way through that cycle,” Gleason said. He expects the market’s troubles to be “largely behind us” by the end of 2027.
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