Big Banks Return to Commercial Real Estate Lending

Big banks are returning to commercial real estate (CRE) loans, drawn by a growing number of data center projects. The shift comes after several years in which banks avoided the sector, wary of losses as office vacancy rates stayed high after the pandemic.

Now, banks have worked through their most problematic loans and are recording fewer delinquencies in their real estate portfolios. Specifically, the share of distressed commercial real estate loans at risk of default fell sharply at some lenders in the second quarter, although the sector’s overall delinquency rate remains relatively high. Lenders also report applying tighter standards this time, even as they clear troubled loans remaining from continued weakness in some office markets.

The renewed interest is showing up in loan balances. Namely, Bank of America and U.S. Bancorp each reported commercial real estate balances more than 8% higher than a year earlier. Additionally, Truist Financial posted a roughly 25% gain, and PNC Financial Services Group was up 15%.

New lending is climbing, as well: First-quarter originations for commercial real estate mortgages rose more than 50% from a year, according to a Mortgage Bankers Association survey, driven largely by an 80% jump in lending from traditional banks. All told, commercial real estate loans at U.S. banks reached nearly $3 trillion in June — up about 3% from a year earlier, according to Federal Reserve data.

Notably, data centers are behind much of this activity. Banks have already gained from the artificial intelligence boom through deal-making and corporate lending, and now the developers building these projects need mortgages and construction financing of their own.

Why This Matters

Although data centers are attracting most of the new capital, the broader thaw in CRE lending is also welcoming other property types, including the office-to-flex conversions and coworking buildouts that have gained traction as traditional office demand remains uneven.