Commercial Real Estate May Have a Buyer

NEW YORK (TheStreet) -- JPMorgan Chase (JPM Quote) is reportedly sniffing around the battered commercial real estate market, which could be good news for regional banks saddled with exposure to the increasingly distressed market.

The downturn of the commercial real estate sector is typically the third and final leg of an ongoing credit cycle preceded by securities writedowns and then consumer losses. Typically, smaller banks have greater exposure to commercial real estate loans than the large banks, as the business is much more localized and "relationship-based."

Problems in commercial real estate started to become more apparent during the second quarter at many regional banks, including BB&T (BBT Quote), US Bancorp (USB Quote), Comerica (CMA Quote), Regions Financial (RF Quote), Marshall & Ilsley (MI Quote), M&T Bank (MTB Quote) and Zions Bancorp (ZION Quote), among other names.

Both JPMorgan and Citigroup (C Quote) have said they do not have large exposure to the commercial real estate market. But that could soon change. In an interview with Reuters, Todd Maclin, JPMorgan's Texan head of commercial banking, says the sector may present opportunities next year.

"These assets are rapidly re-pricing, there are a number of distressed sellers, there are a number of financial institutions that are overexposed, and from our past experience those sorts of things generally translate into an opportunity as you approach the bottom," Maclin told Reuters.

Regional banks are tied much more closely to the health of the economy as they depend much more on making money on the spread between the interest rates they offer depositors and the amount at which they lend money to businesses and consumers. This can be particularly stressful as borrowers don't pay their loans back, measured by nonperforming assets, and weak demand for lending as a result of an anemic economy.