Bank OZK took in $9.2 billion in loan repayments over the past 12 months while originating $5.2 billion, shrinking its Real Estate Specialties Group by $9.1 billion from a March 2024 peak to $25.4 billion in total commitments. The $43.2 billion-asset lender reported third-quarter profit of $164.3 million, down 9% year-over-year. Its shares closed up 4.2% at $48.09 on Wednesday.
The bank said abundant debt capital is squeezing RESG from both directions. Developers have struggled to raise equity, which has held back construction starts. The deals that do get funded attract a throng of competing lenders. Meanwhile, plenty of debt is helping existing borrowers refinance or sell and pay off Bank OZK.
Debt markets are flush with liquidity, President Brannon Hamblen said on a call with analysts Wednesday, and that makes life difficult for originators on the competitive origination side but creates liquidity on the legacy portfolio side and is generating a lot of repayments. RESG loan repayments totaled almost $1.7 billion in the third quarter. The bank took in another $690 million in payoffs and paydowns in the first 19 days of October.
Some repayments the bank didn't expect until next year may arrive this quarter instead, which led it to trim its 2026 loan growth forecast to 3% to 5%. Fourth-quarter repayments could be at or near a record, the bank said, and it expects them to stay elevated through 2027. Debt funds have supplanted banks and insurers as the top sources of commercial real estate debt, and there are an abundance of debt funds willing to work with people on troubled properties, MSCI's Jim Costello told Bisnow.
Bank OZK has said it wants to keep growing while materially reducing its loan concentrations. RESG accounted for 45.2% of the bank's $34.1 billion in loans at the end of September, down from an all-time high of 70%. Its outstanding commercial real estate loans are now below 300% of its capital, the level at which regulators give banks closer scrutiny. The bank expects its corporate and institutional banking unit to overtake RESG in size sometime in 2027.
That's a sharp turn for a lender that made more construction loans than JPMorgan Chase or Wells Fargo as recently as 2023, according to MSCI data. RESG originations peaked at $13.8 billion in 2022 and have fallen every year since, to $7.2 billion in 2023, $5.4 billion in 2024 and $5 billion in 2025. The group originated $3.6 billion through the first nine months of this year.
Bank OZK's foreclosed assets rose to $420 million at the end of September, from $293 million in June and $79 million a year earlier. The largest addition was a Boston life sciences property the bank took over after a pending sale fell through, forcing it to write off $37.3 million. CEO George Gleason said the bank won't rush to sell, aiming to not take losses you don't need to take.
Earlier this month, Citi analysts called a roughly six-week extension on Bank OZK's $915 million construction loan for IQHQ's RaDD life sciences campus in downtown San Diego a sign of distress, and the bank's shares fell more than 5%. On October 9, the sponsor and mezzanine lender put in another $100 million, bringing their total investment in the project to about $1.23 billion, and Bank OZK extended the maturity date to December 2029. Gleason said the short extension gave the equity partner and mezzanine lender time to agree on how they would handle future capital contributions.
Gleason called RaDD an absolutely great asset that will eventually lease up. The vast majority of its 1.7 million square feet of lab and office space is empty after the project delivered in 2024. It's not a question of if, it's just a question of when, he said. Hamblen was more measured, acknowledging that lab demand is not what it was. Gleason said he expects the market's troubles to be largely behind us by the end of 2027.