Key Takeaways:
Major US banks are returning to commercial real estate lending, reversing a multiyear pullback that followed investor warnings of a wave of defaults across office and multifamily properties.
"The disruption in our local marketplace remains very high, and the environment for our organic growth strategy as it relates to acquiring clients and bankers continues to be very attractive," said Stuart Lubow, chief executive officer of Dime Commercial Bancshares, on the bank's second-quarter earnings call Wednesday.
Dime Commercial posted record second-quarter revenue of $126 million, above the $123.46 million consensus estimate, as business loans grew 26% year over year to about $743 million. The bank's net interest margin expanded for a ninth consecutive quarter to 328 basis points, and its efficiency ratio fell below 50% for the first time. Western Alliance Bancorporation, which reported results a day earlier, posted $995.7 million in revenue, beating the $980.53 million forecast, with commercial and industrial loans accounting for more than 80% of its $1.8 billion in quarterly held-for-investment loan growth.
The shift marks a notable departure from 2023 and 2024, when most large US lenders tightened underwriting standards and reduced CRE exposure amid rising vacancy rates and higher borrowing costs. The last time a comparable rotation into CRE lending occurred was in late 2021, when low interest rates and strong property valuations drove a surge in origination volumes that peaked at about $700 billion in aggregate CRE loan originations across US banks, according to Federal Reserve data. That cycle ended abruptly after the Fed began raising rates in March 2022, pushing the average CRE loan delinquency rate to a peak of 1.6% by mid-2024.
Dime Commercial said its loan pipeline stands at about $1.4 billion with a weighted average rate of 6.25%, and that it expects to resume share repurchases in the third quarter after reducing its commercial real estate concentration ratio to about 350%. Western Alliance lowered its full-year loan growth target to $5 billion from $6 billion, redirecting capital toward $150 million in planned buybacks in the second half of 2026, while maintaining a CET1 ratio of 11%.
The renewed appetite for CRE lending reflects a broader stabilization in property markets. Office vacancy rates in major metropolitan areas have plateaued near 20%, according to Moody's Analytics, while multifamily rents have resumed growth after a two-year slowdown. Dime Commercial said its non-performing assets fell 28% from the prior quarter, though it took a $6 million specific provision on about $27 million in multifamily loans nearing 90 days past due. Western Alliance reported that two of six previously disclosed non-accrual loans had been resolved, with the remaining four on track for resolution in the second half of the year.
For regional banks, the return to CRE lending carries both opportunity and risk. A net interest margin of 328 basis points means Dime Commercial earns $3.28 for every $100 in interest-earning assets, a level that becomes more valuable as loan volumes expand. But the provision for credit losses at Dime Commercial rose to about $14 million in the quarter, and the bank's allowance for credit losses reached 98 basis points of total loans, near the top of its 90-to-100-basis-point target range. Western Alliance's allowance stood at 89 basis points, with management expecting incremental increases as the loan mix shifts further toward C&I lending.
The strategic calculus differs by institution. Dime Commercial, which rebranded from Dime Community Bank in June, is leaning into its transformation from a legacy multifamily thrift to a diversified commercial lender, with more than 70% of deposits now coming from commercial and municipal customers. Western Alliance is deliberately slowing balance-sheet growth to prioritize share repurchases, arguing its stock trades at a meaningful discount to intrinsic value. Both approaches reflect a shared conviction that the worst of the CRE downturn has passed — and that the banks best positioned to lend into the recovery will capture market share from competitors still on the sidelines.
This article is for informational purposes only and does not constitute investment advice.
