How Property Type and Location Affected US Lenders’ Losses

Some U.S. commercial-real-estate lenders have experienced significant distress this year due to concerns over their exposure to falling property values.¹ Although the overall size of exposure is relevant, the nature of the collateral pool is also critical. What type of property were the loans made against? Where are the properties? When were the loans made? The answers to these questions drive how the value of the collateral has evolved over the lives of loans.

Price changes for loan collateral

We matched loan-by-loan data for 6,648 lenders from the MSCI Mortgage Debt Intelligence database with granular price-growth trends to analyze the collateral pools. The analysis estimated that about one-third of lenders had unrealized losses in aggregate.² We further examined a subset of 1,189 lenders, excluding smaller lenders and those that often have loans concentrated in just one or two properties.³

The lenders with the worst-performing pools were those with highly concentrated exposures to challenged property-type and market segments, such as Manhattan office. Those with the best-performing collateral pools were generally more diversified across markets and had greater exposure to industrial and hotel properties.

For example, Lender 1, which had an estimated -28% unrealized loss as of Q1 2024, was almost exclusively exposed to offices in Manhattan and Washington, D.C. Conversely, Lender 1,188, with a 42% unrealized gain, had more exposure to retail, industrial and hotel than any of the 15 worst-performing lenders and was more diversified geographically.