Banks are navigating an unpredictable commercial real estate (CRE) market marked by changing risk assessments, asset valuations, and deal structures. The current yield curve volatility, unclear property market values, and evolving examination expectations necessitate a multifaceted approach to managing CRE portfolios and future deal originations. Banks must develop a unified risk view throughout the customer lifecycle, using portfolio monitoring, real-time analytics, and multidisciplinary collaboration.

Moody's documentary "Work from Where" delves into the evolving CRE landscape, illustrating ways for investors and lenders to manage risks, identify opportunities, and build resilience. Leveraging data and analytics, Moody's aids financial institutions in identifying gaps in traditional approaches and making quicker, more confident decisions by strengthening resilience and adaptability. This includes proactive risk measurement and navigating uncertain situations for scalable growth.

The challenges facing banks in CRE include rising interest rates, loan repricing, market volatility, and evolving regulatory expectations. Fixed-rate loan borrowers face a challenging refinancing environment, turning to adjustable-rate and hedging strategies. Despite slowing price increases, inflation remains above target, influencing the Federal Reserve's interest rate decisions, creating an uncertain future for borrowers and investors. The 2023 collapse of banks such as Signature Bank, Silicon Valley Bank, and First Republic Bank intensified regulatory scrutiny. Understanding risk both now and in future scenarios has become critical, prompting banks to invest in enhanced risk management capabilities.

To address these challenges, banks are advised to prepare multi-scenario plans, realign strategies to meet the "new normal," stay informed on regulatory changes, and leverage emerging technologies like generative artificial intelligence for improved decision making.

"The office market poses a 'Bermuda triangle of uncertainty,'" said Joe McBride, Senior Director, Commercial Real Estate Data Products at Moody’s Analytics, with issues surrounding fundamentals, tenant types, and interest rates.

Banks have a chance to redefine their roles in CRE, becoming strategic allies that help borrowers and investors succeed amid the new realities. By embracing data-driven approaches, banks can manage risks and uncover new growth opportunities in the dynamic commercial real estate arena.