Media
Media Hyping Potential for CRE Loans to Collapse Banks, Expert Says
April 05, 2023
Marcus & Millichap is advising commercial real estate investors to not get caught up in the many overly dramatic, negative, and false headlines they are seeing in relation to Silicon Valley Bank and the potential for CRE to go down with it and similar banks.
John Chang, senior vice president, national director research and advisory services, speaking in a Marcus & Millichap video, said much of the news lately has been misrepresented and even false.
Many stories have suggested that small and regional banks hold 70% of CRE debt.
“But this calculation is misguided, he said, as it classifies this group as any bank not in the top 25 overall, globally,” Chang said.
He said there are 4,476 such “small” banks, and when considering that, it’s not a “doom loop” as some would suggest.
Chang said smaller and regional banks hold roughly 20% when you consider the average over the past eight years. He acknowledged that yes, some loans will default, but most won’t.
He said it’s important to consider when the loan was written, when it will mature, and how much equity was involved.
He said many loans that could come due in 2023 were written with conservative underwriting and at a 65% loan-to-value (LTV) ratio.
“That means the property’s value must fall by 35% to be in trouble,” he said. “When you look at the loans written five years ago, the properties’ value has risen about 25%, on average, and is probably worth more than what it was when it was purchased.”
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John Chang, senior vice president, national director research and advisory services, speaking in a Marcus & Millichap video, said much of the news lately has been misrepresented and even false.
Many stories have suggested that small and regional banks hold 70% of CRE debt.
“But this calculation is misguided, he said, as it classifies this group as any bank not in the top 25 overall, globally,” Chang said.
He said there are 4,476 such “small” banks, and when considering that, it’s not a “doom loop” as some would suggest.
Chang said smaller and regional banks hold roughly 20% when you consider the average over the past eight years. He acknowledged that yes, some loans will default, but most won’t.
He said it’s important to consider when the loan was written, when it will mature, and how much equity was involved.
He said many loans that could come due in 2023 were written with conservative underwriting and at a 65% loan-to-value (LTV) ratio.
“That means the property’s value must fall by 35% to be in trouble,” he said. “When you look at the loans written five years ago, the properties’ value has risen about 25%, on average, and is probably worth more than what it was when it was purchased.”
