Big commercial real estate downturn could sink 300+ banks: Report
An analysis by CBRE estimates that a severe downturn in commercial real estate could wipe out the Tier 1 capital of more than 300 banks, most of which are smaller institutions. But that scenario is highly unlikely, according to analysts.
LAS VEGAS A sharp downturn in commercial real estate performance could have a big impact on the banking sector, but not big enough to destabilize the financial system, according to analysis from one of the top real estate economists in the country.
More than 300 banks have enough commercial real estate loans on their books to see their Tier 1 capital wiped under a worst case scenario, Richard Barkham, chief economist and head of research at CBRE, said this week during a conference hosted by the National Association of Real Estate Editors.
Barkham said the real estate advisory firm analyzed Federal Deposit Insurance Corp. data on the balance sheets of 4,800 insured banks to identify the banking sector's total exposure to commercial real estate. It then applied a hypothetical stress scenario in which property values and net operating incomes fell enough to result in a total loss.