Delinquencies on loans at large banks backed by nonowner-occupied commercial real estate properties rose again in the second quarter, as the segment continued to be a unique area of concern for the biggest lenders.

For banks of most sizes, the delinquency rates are similar for commercial real estate (CRE) loans on owner-occupied and nonowner-occupied properties. But for banks larger than $100 billion in total assets, CRE loans on nonowner-occupied properties have shown notable weakness in recent quarters, with worsening performance in the most recent period.

The delinquency rate for such loans was 4.94% in the quarter, up 53 basis points sequentially, compared with a delinquency rate of 0.99% for $100 billion-plus banks' CRE loans on owner-occupied properties, according to S&P Global Market Intelligence data.

Among the largest banks, the ratio for net charge-offs to loans in the nonowner-occupied CRE segment was 1.62%, up 49 basis points quarter over quarter.

Recent years' divergence

The divergence between owner-occupied and nonowner-occupied CRE loans — driven by weakness in the nonowner-occupied portfolios at large banks — began in 2023. The move followed a decade in which nonowner-occupied loans performed similarly to, or better than, owner-occupied loans on average across the bank space.

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Large bank delinquencies

Among banks with at least $5 billion in CRE loans, Morgan Stanley had the highest proportion of nonowner-occupied loans to total CRE loans, at 97.9% as of June 30. Within that portfolio, 5.76% of loans were delinquent, well over the group median of 0.91%.

At Goldman Sachs Group Inc., nonowner-occupied loans were 97.0% of the $7.31 billion CRE loan book that the company reported in bank regulatory filings. That portfolio, which represented a portion of Goldman Sachs' firmwide CRE exposure, was down from $7.50 billion a quarter earlier, but its nonowner-occupied delinquency rate was higher sequentially, rising to 10.22% from 8.55% at March 31.

Other large banks with relatively high levels of weakness in nonowner-occupied CRE portfolios included Capital One Financial Corp. with delinquencies of 3.55% in the segment, Wells Fargo & Co. with delinquencies of 6.59%, Citizens Financial Group Inc. with delinquencies of 5.79% and JPMorgan Chase & Co. with delinquencies of 3.52%.