Fed's Powell sees no broad threats from commercial real estate lending

Powell, speaking at a press conference following the end of the Fed's latest two-day policy meeting, said the U.S. central bank is closely watching commercial real estate risks and expects to see losses. But he added that these types of loans are broadly spread through the financial system and are often held by smaller banks, reducing the risk of system-wide trouble.

Federal Reserve Chair Jerome Powell said on Wednesday that U.S. commercial real estate lending remains under pressure but appears unlikely to threaten the broader financial system. Powell, speaking at a press conference following the end of the Fed's latest two-day policy meeting, said the U.S. central bank is closely watching commercial real estate risks and expects to see losses.

But he added that these types of loans are broadly spread through the financial system and are often held by smaller banks, reducing the risk of system-wide trouble. Challenges in this sector feel "like something that will be around for some time," Powell said. Office loans have posed concerns for some U.S. lenders as property values decline and more borrowers default on their loans.

Banks represent 54% of the overall $5.7 trillion commercial real estate market, with small lenders holding 70% of the loans in that market, according to Citigroup analysts. More than $1.4 trillion in U.S. commercial real estate loans will mature by 2027, with some $270 billion coming due this year, according to real estate data provider Trepp.

Loans backed by offices make up the biggest share of the maturing debt load, followed by multi-family and retail properties. Wells Fargo CEO Charlie Scharf said last month that

there will be losses in the office loan space, but that the lender was proactively managing its portfolio.

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