Editor’s note: This column ran in the Feb. 22 edition of The Pulse, a weekly BankBeat email sent to subscribers which also includes top stories from the previous week.
If I had set aside $10 every time a community banker admitted to me that they were “bad at telling their own story,” I’d be writing this essay seaside instead of inside a fully-leased suburban office building looking out onto a frozen pond. I’ve given our office building “character status” here because its lack of empty suites counters the prevailing narrative that professional buildings are, by and large, empty. That narrative invites a more troubled one: That banks involved in commercial real estate are teetering.
Sweeping generalizations are the enemy of sound argumentation, but that doesn’t stop quite a few journalists, investors and skittish customers from spreading panic when a thoughtful consideration of risk — and reality — would be more appropriate.
Consider how the media has turned recent events at New York Community Bancorp into a harbinger of the next banking crisis. (NYCB is the company that bought assets from Signature Bank, the second in the trio of banks to fail last spring.) The value of NYCB stock plummeted after it revealed in an earnings call that it had unexpected losses on real estate loans tied, in part, to office buildings.
It didn’t take long for the echo effect to take hold. Stocks at a number of large, regional banks fell too. From the New York Times: “A large swath of other lenders, including community banks and private lenders, could also face losses linked to commercial real estate loans.” The article points to the shift to remote work as a cause. Just one month earlier, CNN Business ran a piece that screamed: “Office Vacancy Rate Hits Record High.” (What’s that record, you might wonder? According to Moody’s Analytics, at year-end 2023 it was 19.6 percent. Read on to learn that the pre-pandemic average office vacancy rate was 16.8 percent. That’s a rise of 2.8 percentage points.)
Community bankers, it’s time to control the narrative on CRE exposure because your reputation is at risk. Bankers in the BankBeat/Pulse region have little to worry about. Their CRE portfolios comprise owner-occupied commercial buildings, multi-family properties in communities where housing demand is strong, and retail developments that are holding their own even as shopper preferences evolve.
I was on the phone a week ago with the Iowa Superintendent of Banking, who told me CRE lending in Iowa is performing well. In a state where agriculture dominates the economy, the narrative about troubled CRE dooming banks couldn’t be more off-base.
Controlling the narrative about what’s going on at your bank, regardless of your market area or the scope of your CRE lending, is essential. A year ago, when that trio of banks failed, bankers who didn’t control the narrative around uninsured deposits lost core funding to TBTF banks. Those bankers who did control the narrative, meanwhile, talked about the availability and benefits of cash sweep products that safeguard deposits in excess of FDIC insurance limits, and they kept customers.
Now, panic is bubbling about CRE. The media is telling people (your customers) that your bank is likely in trouble because office towers in cities far from where you do business are filling with dust. Counter that tale by telling your bank’s unique story. Be proactive about shaping peoples’ perception of your bank, especially about the critical differences between you and banks like NYCB. This is important work, especially now.