Many U.S. regional lenders may have to consider selling off commercial real estate (CRE) loans at a steep discount after breaching key regulatory thresholds for exposure to the troubled sector, Reuters reported. Regional banks, the largest lenders to the beleaguered U.S. CRE and construction markets, have reduced their exposure to the sector by tightening standards and making fewer loans, especially in the weeks after the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank. Their tightening comes as many real estate borrowers face challenges making interest payments in a rising interest rate environment, while office use has declined and property values have decreased on recession concerns. Still, previously unreported data from New York-based real estate data provider Trepp, shared with Reuters, show many regional banks' holdings exceed thresholds stipulated by regulators. Banks whose CRE or construction loan holdings exceed 300% and 100% of their total assets, respectively, should expect to receive greater regulatory scrutiny, according to 2006 guidance from the Federal Deposit Insurance Corp. and other regulators.
