Deutsche Bank wants to dump $1 billion in CRE loans

Real estate investors have another reason to be anxious about the commercial sector.

Deutsche Bank AG is gearing up to unburden itself of $1 billion in U.S. commercial property loans from its portfolio to clean up its balance sheets, Bloomberg reported.

The lender, which the Wall Street Journal referred to as “the world’s most troubled bank”  has been working for months to stabilize its business. But it still had $16 billion in loan exposure to U.S. commercial real estate at the end of the second quarter, with close to half of it linked to offices, according to the outlet.

The commercial market has been hit hard by ballooning borrowing costs. And the return-to-work outlook is not improving enough to make investors giddy as they see profits dwindle across portfolios.

Deutsche Bank’s loan book is underperforming and dragged down its profits, which hit a new high last quarter. The writing is on the wall that commercial real estate may not be the answer for a bank looking to further improve its margins on rising profits.

What happens with the market is still anyone’s guess; some think it has already bottomed out, others think there’s deeper to go, but a few, if any, are optimistic. 

Some experts are eyeing the election and its potential impact on the economy. Though, the Fed ultimately pulls the levers on interest rates and manages inflation. Further, elections have little impact on office-leasing in general, and will not reverse growing distress overnight.

Deutsche isn’t the only bank feeling the crunch. M&T Bank also had recent troubles with commercial real estate loans as defaults piled up.

Still, according to the New York Times, the big banks aren’t the canaries in the coal mines, but rather regional and community banks, which hold nearly two-thirds of the commercial real estate loans on the books, per S&P Global Market Intelligence. 

 — Christina Previte

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