Cracks are starting to form in the long-frozen market for bank lending for commercial real estate.
Executives at M&T Bank, PNC Financial Services Group and other banks said this week they expect to see growth return for commercial real estate loans starting early next year. The shift would come after banks have steadily cut their exposure to the commercial real estate sector over the past several years, mostly in response to rising delinquencies on office-building mortgages.
"We feel very optimistic on the growth" of commercial real estate lending "coming in the next quarter or two," Daryl Bible, chief financial officer at M&T, said during a conference call to discuss third-quarter earnings.
"The amount of production that's being done and going through our system and the approval rates are double than in prior quarters," he said.
M&T held $24.4 billion in commercial mortgages as of Sept. 30, according to the bank.
M&T is especially focused on growing commercial real estate loans for multifamily properties, followed closely by industrial real estate, Bible said. The Buffalo, New York-based bank is also "interested in retail, hotel and healthcare on a case-by-case basis," he said.
Not all banks are publicly voicing optimism about a swing to commercial mortgage growth. Executives at U.S. Bancorp and Citizens Financial Group did not mention potential growth in commercial real estate lending during conference calls this week.
Managing exposure
Since the pandemic, banks managed their exposure to commercial real estate by "increasing capital and reserves and by reducing loan balances, redeploying capital [to commercial real estate] more slowly than the rate at which loans were being repaid," Stephen Lynch, senior credit officer at Moody's Ratings, said in an emailed statement.
"Now, banks have a clearer understanding of their existing balance sheets and lending opportunities in the market," Lynch said. Commercial real estate capital market activity "outside of banks has also rebounded."
In addition to M&T and PNC, First Horizon and KeyCorp are other banks that have predicted commercial real estate lending growth will return in early 2026.
"Clearly ... we're expecting a turn in commercial real estate lending as rates have come down and projects pencil out better and the momentum that we're seeing in the organization," Bryan Jordan, CEO at Memphis, Tennessee-based First Horizon, said Wednesday.
Chris Gorman, CEO of Cleveland-based KeyCorp, said Thursday, "Right now, you can see that [commercial real estate] is sort of coming into equilibrium, but I think you'll see us actually grow our" commercial real estate exposure in 2026.
A number of banks still hold problem commercial mortgages on their books. Providence, Rhode Island-based Citizens, for example, shrunk its commercial real estate loan portfolio 3% in the third quarter, compared to the prior quarter, to $25.5 billion.
"We're still managing that down to get kind of back to the playing weight that we'd like to play at," Citizens CEO Bruce Van Saun said during a Thursday call.
Other banks, however, said their institutions have nearly completed the process of cutting exposure to commercial properties.
"We're near the end in terms of the sort of the rundown of those balances," Robert Reilly, chief financial officer at Pittsburgh-based PNC, said during a Thursday conference call. "We are doing new deals but, as we work through, obviously, the issues in office, et cetera, we'd expect that to turn positive going into 2026."