Commercial Leases Soften

How many of your friends work full-time from the office? It’s not a surprise that many white collar jobs have shifted towards remote or hybrid since the pandemic. While it may be great for both employees and employers, what happens to the empty commercial real-estate?

Living in NYC, the shift is especially stark. Pre-pandemic, Manhattan had an office vacancy rate of 11% for the last few decades. Now, vacancy rates are at a record 22.7% and are expected to stay above 20% through at least 2026.

One bank that felt the effects of remote and hybrid work is New York Community Bancorp (NYCB). NYCB reported earnings this week on 1/31/2024 and shocked the market by cutting its dividend by 70% and increasing credit provisions (expected losses) by 790% on its commercial real estate loans.

NYCB dropped ~40% after the announcement.

This also shook Wall Street’s confidence in other regional banks. The KBW Regional Banking Index fell 6% (biggest single-day decline since collapse of Signature Bank in March 2023) on 1/31/2024 and fell another 2.3% the day after before finally stabilizing on Friday.

Another bank that recently missed earnings and felt the effect of NYCB’s drop was Columbia Banking System (COLB) which dropped 24% on 1/24/2024 and another 7% on 1/31/2024. COLB provides retail and commercial banking services throughout Washington, Oregon, Idaho, and California.

However, since COLB’s drop on 1/24/2024, 12 different insiders have purchased between $20k - $200k in stock at COLB including the CEO, CFO, CSO, and multiple directors.

For a majority of the insiders, this transaction marked the first purchase in the last 2 years. Others like Senior Executive VP Chris Merrywell purchased COLB stock on the open market for the first time since joining the company in 2012. Another Senior Executive VP Torran B Nixon also purchased COLB stock after selling 3 times in the last 2 years showing a trend reversal.

In addition to COLB, we are seeing additional insider buying at other regional banks including TCBI, SFBC, and RBB since the sector-wide drop on 1/31/2024. In total, there have been 17 purchases by insiders in regional bank stock and 1 sale over the last 3 days.

You can use the advanced screener tool at StockOcean to filter purchase behavior by industry (Financials) and sector (Regional Banking) to see all the latest buying and selling activity.

What do you think about the weakening of Commercial Real Estate? Is it specific to NYCB or could it affect other regional banks? Let us know!

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