Regional and small U.S. banks have driven a rapid rise in commercial real estate (CRE) lending, with their share of new loans increasing from 30 % of total originations in 2016 to nearly 40 % by 2024. The growth, especially in construction and multifamily loans, is largely supported by deposits concentrated in the same local markets where the banks lend. Researchers found that a higher share of local deposits correlates with faster loan expansion, a relationship strongest among banks that grew their CRE portfolios by more than three years at the 70th percentile. While these banks maintain comparable capital ratios to peers, the geographic concentration of funding may expose them to sharper credit pressure during regional downturns.
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