Part 6/11:
Most of these loans are variable-rate, resetting every 3-7 years. With over $2.2 trillion in CRE loans coming due between now and 2027, many properties might struggle to refinance, especially as property incomes decline and costs rise in a higher-rate environment. Defaults could increase, potentially causing a cascade of losses within small and regional banks.
Why the Fallout Matters
The crux of the concern lies in the interconnectedness of these loans and the banks' assets. If a significant number of CRE loans default or decline in value, smaller banks could become insolvent or severely strained. Larger banks are better positioned—they have stress-tested their portfolios against such declines and hold more diversified assets—making them less vulnerable to immediate collapse.