)
Office loans aren't the only commercial real estate problem facing U.S. banks.
Financial institutions with a large proportion of multifamily borrowing on their books could wind up posting losses this year, analysts for Fitch Ratings said Wednesday, Reuters reports.
There are 49 U.S. banks with more than 5% exposure to multifamily loans, per Fitch, which could be trouble as supply has begun to outpace demand in some markets, pushing rents down while interest rates and insurance costs rise. The exposure comes after banks increased their multifamily lending by 32% between 2020 and 2023, bringing the total to $613B in loans on their books.
While the ratings agency’s warning applied to all bank lending on multifamily rental housing, loans to rent-controlled properties are especially vulnerable because of landlords' inability to raise rents to cover expenses, Reuters reported.
The 10 banks with the highest exposure at the end of the year included Flagstar Bank, according to Fitch. Flagstar merged with New York Community Bancorp in 2022 and ended last year with 43.6% of its loan portfolio in multifamily. NYCB increased its credit losses to more than $550M last year, in part because of sourced rent-stabilized debt.
Apple Bank for Savings, Dime Community Bank, Pacific Premier Bank and First Foundation Bank also have heavy multifamily exposure.
Fitch analysts were particularly concerned by loans in markets with exposure to rent control measures, including California, New York, New Jersey and Oregon.
Most banks have enough reserves to avoid running into difficulty with multifamily lending, Brian Thies, a senior director for financial institutions at Fitch said on the call. But overall, analysts said that banks facing capital constraints may seek to sell off some loans at a loss.
"It's generally going to come down to the value of the collateral and how readily the bank can dispose of that," Thies said.
Fitch’s warning follows a tense year for rent-controlled multifamily owners and institutions that lend to them.
Last spring, the failures of three regional banks — Silicon Valley Bank, Signature Bank and First Republic Bank — sent panic through the U.S. financial system and led to an unusual intervention by the Federal Reserve.
Signature, in particular, was an active lender to rent-stabilized buildings, and only minority stakes in its loans were sold off in pieces by the Federal Deposit Insurance Corp. to ensure the buildings could be maintained as affordable. But with other active New York lenders like NYCB, Dime and Apple Bank on Fitch's watch list, apartment owners in the city are still bracing for more impact.
)
)
)
)
)
)
)
)
)
)
)
)