Dimon Says Commercial Real Estate Owners Are Handling Stress

JP Morgan Chase CEO Jamie Dimon said Monday (Feb. 26) that most owners of commercial real estate will be able to “muddle through” the current economic environment.

Those owners will be able to refinance and put more equity in, if there is not a recession, Dimon told CNBC Monday, according to a Bloomberg report.

Because many property owners are already handling the current level of stress, and the challenges of lower valuations and higher interest rates are already known, only “pockets” of the commercial real estate sector will experience problems, so long as the country avoids a recession, Dimon said.

However, if rates go up and there is a recession, there will be more commercial real estate problems — and some banks will have a bigger problem in this sector than others, Dimon said, per the report.

In early February, regional banking shares in the United States experienced a significant decline triggered by New York Community Bancorp’s (NYCB) report on Jan. 31 that it faced challenges in its commercial real estate portfolio.

Regional banks are facing pressure due to their exposure to the troubled commercial real estate sector, which has been affected by high borrowing costs and remote working trends.

NYCB reported on unexpected loss of $260 million in the fourth quarter of 2023, compared to a gain of $164 million in the same period the previous year. Bank executives attributed the loss to a rise in unexpected loan losses, particularly from loans tied to office buildings.

On Feb. 7, Moody’s Investment Services lowered NYCB’s credit grade to “junk,” saying that the bank is dealing with “multifaceted” financial risks and governance challenges.

Another bank, PNC Financial Services Group, said in January that it saw delinquencies, total non-performing loans (NPLs) and net loan charge-offs increase during the fourth quarter, with its commercial real estate portfolio being a notable contributor to that increase.

Overall, compared to the third quarter, net loan charge-offs leapt 65% in the fourth quarter, PNC Financial Services Group reported Jan. 16.

“The CRE office portfolio is where we continue to see the most stress and the fourth quarter’s net loan charge-offs were $56 million,” Robert Q. Reilly, executive vice president and chief financial officer at PNC, said at the time.