During a conference hosted by AllianceBernstein Holding on Wednesday, Charles Scharf, CEO of Wells Fargo & Co., gave the audience a dose of reality. Speaking of the bank’s office loan portfolio, Scharf asserted that “there will be losses.” And those losses will occur despite the fact that Wells Fargo is being proactive in its bid to avoid loan defaults by attempting to hammer out loan restructurings with borrowers that are facing trouble. Ultimately, however, for Wells Fargo, any handing over of keys to office buildings will likely be minimal as Scharf noted that Wells Fargo’s loan portfolio is not heavily exposed to office.
Banks across the country are quivering at the thought of having to call in billions in office property loans. According to numbers from Trepp earlier this year, more than $40 billion of loans backing nearly 600 office properties are scheduled to reach maturity by the end of 2024. Now that we’ve officially reached mid-2023, there isn’t much time left for borrowers to secure refinancings (which is easier said than done as lenders become more stringent with guidelines) or come to an agreement with their lender to avoid losing the property. However, like Wells Fargo, many banks are choosing to negotiate a change in loan terms with borrowers that are owners of troubled office properties. After all, bankers are bankers, not landlords. Still, there will be losses, and not just for Wells Fargo.