After years of balance sheet clean-up and strategic asset sales, banks have re-entered the CRE lending market with renewed engagement. In Q1 2025, the nation’s largest banks reactivated lending on commercial properties, albeit cautiously. While debt capital is still flowing, banks are increasingly risk-averse and concentrating on loans with existing customers or deals with strong fundamentals. Commercial real estate loan performance has stabilized in many areas, but the first round of big bank earnings reports signals a growing sense of concern surrounding the near-term forecast given the uncertain economic environment.
“Commercial real estate lenders are being challenged to strike a balance between opportunity and risk in a market that’s turned volatile, fast,” observed Dianne Crocker, research director at LightBox. “Until there’s more clarity on tariffs and interest rates, banks will exercise extreme caution in deploying debt capital.”
Stabilization, Not Recovery, in CRE Portfolios
Wells Fargo noted improvements in its commercial real estate office portfolio in Q1, reporting a decline in charge-offs—the losses the bank records when it doesn’t expect to be repaid. These charge-offs dropped to 16 basis points of average loans, down sharply from the previous quarter. CFO Mike Santomassimo noted that while overall credit performance is stable, the office sector remains the most stressed.
“We’re not seeing deterioration happen in any meaningful way relative to the trend that we’ve had over the last couple of quarters,” Santomassimo said. “Really, the only place that we’ve seen any systematic stress is still the office portfolio, and even there, it’s been pretty stable in terms of the trends and what our expectations have been.”
And while JP Morgan CEO Jamie Dimon did not directly discuss CRE during the call, the bank’s financial disclosures indicated a cautious approach to potential credit risks. Dimon highlighted “considerable turbulence” in the economy, citing factors such as geopolitical tensions, ongoing inflation, high fiscal deficits, and elevated asset prices. He noted that these factors are leading to increased borrower defaults and emphasized the need for swift progress in trade negotiations to stabilize volatile markets.
Despite lingering concerns, S&P Global’s analysis suggests that the threat to bank credit quality from CRE loans is easing. From June 2023 to February 2025, rated banks experienced only gradual deterioration in CRE asset quality. This reduction in risk exposure is enabling banks to cautiously originate new loans and support refinancing activity in a way they haven’t over the past two years. While this doesn’t signal a broad lending rebound, it marks a selective re-engagement by banks with cleaner balance sheets. For borrowers, that could mean gradually improving access to capital for lower-risk or stabilized assets.
Bigger Loan Loss Reserves Signal Lingering Caution
Even as banks reported strong earnings, they padded reserves in anticipation of future credit deterioration. JPMorgan set aside $3.3 billion in loan loss provisions in Q1—up 75% from last quarter and from $1.9 billion a year earlier—signaling concern about commercial loan performance in a still-uncertain macro environment. JPMorgan, which has taken a notably conservative stance, has recently advised investors to avoid CRE debt altogether. JPMorgan warned that more pain is yet to come and “lagging performance is now more likely.” The bank now assigns a 50% chance of a U.S. recession and has adjusted reserves accordingly.
Citigroup also increased its credit reserves in Q1, citing a projected deterioration in macroeconomic conditions. The bank emphasized that the buildup reflects more conservative assumptions in its baseline and adverse scenarios, rather than specific credit issues in its portfolio.
Morgan Stanley reported net charge-offs of approximately $23 million, primarily related to commercial real estate loans in the office sector. These loans were largely already provisioned for, indicating that the losses were anticipated and previously accounted for in the bank’s financial planning. Like its peers, it’s monitoring risk closely as debt maturities and high interest rates create refinancing challenges.
While headline losses are not spiking, the risk-averse posture signals that lenders are proceeding with caution and preparing for more volatility ahead.
Consumer Stress Adds a New Layer of Risk
While most CRE commentary has centered on office loans and broader portfolio performance, a separate risk is also getting attention: rising consumer credit stress. JPMorgan reported that its credit card charge-offs have reached a 13-year high, aligning with Federal Reserve data showing a 4.58% charge-off rate at the top 100 U.S. banks—a level not seen since 2011.
“On the consumer side, the thing to check is the spending data,” said JPMorgan CFO Jeremy Barnum. “And to be honest, the main thing that we see there is what would appear to be a certain amount of front-loading of spending ahead of people expecting price increases from tariffs.”
This type of behavior muddies the waters when it comes to understanding real trends. As Barnum noted, “You might see some distortions in the data that make it hard to draw larger conclusions.”
Citigroup’s CFO Mark Mason commenting on consumer spending said that “we’ve seen a shift towards essentials and away from travel and entertainment.”
Should consumer stress escalate, the first impacts could be felt in retail centers—especially those with discretionary or service-based tenants. With CRE already under pressure from high interest rates and shifting demand patterns, any additional strain from household balance sheets could push more properties into distress.
Fed Flags Rising Delinquencies
A recent report from the Federal Reserve Bank of Philadelphia confirmed the growing pressure on consumers. The share of credit card accounts making only the minimum payments has reached a 12-year high, and 90-day delinquencies on those accounts also climbed in Q4—setting or nearing record levels. Economists noted that several account-based consumer credit metrics “remained near or set new series highs,” signaling increased financial strain as households struggle with rising interest rates and persistent inflation.
Meanwhile, Dimon warned during the bank’s Q1 call that credit losses will “obviously” rise in the event of a recession—an outcome he pegged at a 50/50 likelihood. He also pointed to recent S&P 500 earnings downgrades as a sign of growing market caution.
Tariffs, Interest Rates, and the Fog of Policy
Goldman Sachs Managing Director Nitin Jagga captured the industry’s uncertainty with a series of pointed questions: “Even if you start isolating, where are the tariff impacts on CRE? Where is the recession impact on CRE? Where is the interest rate impact in all of this?”
These questions reflect just how difficult it is for banks and investors to parse what’s really driving CRE risk right now.
The truth is, it’s difficult to tell. The April tariff announcement introduced a fresh layer of pricing uncertainty, and most institutions are now recalibrating expectations on inflation, trade flows, and interest rate timing.
Rate cuts, once expected early in the year, have been pushed further out. Morgan Stanley, in its Q1 earnings commentary, revised its outlook for 2025 rate cuts from two to just one, citing the economic uncertainty tied to new tariffs and global trade instability.
Bank of America offered a slightly more optimistic tone. The bank reported strong Q1 earnings, buoyed by trading gains in both equities and fixed income. While CEO Brian Moynihan acknowledged macro risks, including tariffs, he emphasized that the U.S. economy remains on solid footing—and said the bank does not currently foresee a recession in 2025.
The combination of elevated interest rates, sticky inflation, and new trade barriers has forced banks to tighten underwriting standards and reprice risk across the board.
For CRE borrowers and investors, the message is clear: fundamentals matter more than ever. In a market defined by policy uncertainty, disciplined lending will continue to shape deal flow and pricing.
What Comes Next for CRE Lending?
What does all this mean for the rest of the lending ecosystem—especially regional banks? For starters, the tone from the big banks provides a preview of what’s coming. Regional and mid-sized institutions tend to hold greater concentrations of CRE loans and are often more exposed to the office and multifamily sectors in secondary and tertiary markets. As balance sheets come under pressure these institutions are likely to follow the big banks in tightening credit even further.
While some big bank executives struck a cautious tone and others voiced more optimism, appraisal activity paints a more nuanced picture—pointing to renewed momentum behind the scenes, at least before tariffs were in effect.
LightBox data confirms that appraisal activity rebounded in Q1, with the Appraisal Index climbing to 59.8—the highest level since Q2 2023. This rebound reflects the early-year re-engagement by banks in CRE lending, although the monthly increases were showing signs of moderating by the end of the quarter.
“The Q1 rebound in appraisal activity reflects a meaningful shift—that banks were slowly resuming loan originations, with demand for valuations ticking back up,”said Crocker. “Each month in Q1 saw growth year-over-year, but the pace of increase slowed in March, suggesting lenders could be assuming a more cautious stance. Our April data will be very telling in terms of whether this cautious momentum continues or if lenders retreat to the sidelines.”
The Q1 2025 big bank earnings cycle didn’t bring surprises—but it did reinforce a clear shift in posture: discipline over growth, and risk awareness over risk appetite.
Looking ahead, several big questions loom: Will sticky inflation and trade tensions keep rate cuts on the sidelines? Could rising consumer stress bleed into retail and mixed-use portfolios? And how much refinancing risk is still hiding just beneath the surface?
For now, CRE credit is still flowing—but with a preference for existing borrowers and low-risk opportunities. CRE investors with stable tenants, predictable cash flows, and conservative leverage will remain at the front of the line. Everyone else may have a harder time finding the capital they need to close deals or refinance maturing loans.
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