© Reuters. The front of an office building is seen in New York City, U.S., July 7, 2023. REUTERS/Amr Alfiky/File photo
As a result, banks recorded continued provisions for credit losses and charge-offs from the previous quarter, driven by their non-performing , or delinquent, CRE loans. In its third quarter earnings release, Morgan Stanley noted it set aside $134 million for credit losses. Similar to the $161 million it set aside in the second quarter, the bank noted this was due to"deteriorating conditions in the commercial real estate sector."
Borrowers have struggled to refinance their CRE loans as property values have declined and interest costs have risen. Some $20 billion of office commercial mortgage-backed securities, which bundle together individual loans, mature in 2023, according to real estate data provider Trepp. "A lot of these big banks benefit from all of these different business lines," said Mayra Rodriguez Valladares, a bank and capital markets risk consultant."Whereas once you start being regional and once you start being a community bank, there isn’t all of that business diversity."