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Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic

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Abstract

The Covid-19 pandemic had an immediate and substantial impact on the commercial real estate (CRE) market—emptying workplaces, shopping centers, and hotels, thus affecting the cash flows of businesses occupying commercial space and in turn the ability of commercial space owners to meet their debt obligations. Delinquent CRE loans began to surface soon after the pandemic started and remain elevated in 2021. Broad loan delinquencies would represent a potential threat to bank capitalization and solvency, particularly for smaller banks that tend to have higher concentrations in CRE lending. Collateral and loan performance have varied significantly by property type during the pandemic. However, regulators do not collect information on CRE exposures by property type at smaller banks, which limits our insight into the systemic implications of CRE exposures at these firms.

Suggested Citation

  • Kyle Binder & Alejandro Drexler & Emily Greenwald & Sam Schulhofer-Wohl, 2021. "Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue 463, pages 1-7, November.
    • Handle: RePEc:fip:fedhle:93408
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    Keywords

    Financial Economics;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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