CVB Financial Corp. was among U.S. banks that reported the most significant exposure to commercial office real estate borrowers, at more than 12% of gross lending, according to a review of the industry's first-quarter filings.
BankUnited Inc. and East West Bancorp Inc. also had relatively high proportional exposure.
Of reporting lenders, TCF Financial Corp. saw the largest increase quarter over quarter, at more than 25%, in its outstanding office loans.
Wells Fargo & Co. had the highest commercial office loan balance at March 31 at $37.5 billion. That was more than double the $17.8 billion held by Bank of America Corp., the bank with the second-highest office loan balance, and more than quadruple the $7.8 billion held by PNC Financial Services Group Inc.
Office market fundamentals in even the tightest, most in-demand office markets have softened in recent weeks as business activity froze around the coronavirus pandemic. In an interview, Jesse Gundersheim, director of market analytics for the San Francisco Bay Area at CoStar, described subdued deal flow and elevated risk levels in the U.S. office market.
"We do expect vacancy to creep up, at least in the near term, and then cap rates may very well respond," he said. "Lenders and investors are largely on the sidelines right now. We haven't seen a lot of for-sale office listings come on to the market yet because why would you do so in today's environment?"
Office real estate investment trust management teams described uncertain market conditions during first-quarter earnings calls in April and May, but they downplayed the likelihood that new work-from-home policies being adopted by some in their tenant base would significantly reduce demand for space in the long term. Douglas Linde, president of Boston Properties Inc., said white-collar workers will feel comfortable again in an office environment.
"I do believe that once we get through this particular virus, people will get back to being comfortable not wearing masks in their offices and being able to be in close proximity to each other," Linde said.
