When it comes to commercial property, investors in the US banking industry become anxious.

The stock price of Axos Financial (AX.US) plummeted on Tuesday after a short-seller targeted the bank's 'significant' real estate loans. Citigroup scrutinized the debt of properties like the San Diego Seaside Complex, causing Bank OZK (OZK.US) to take a hit in May. Earlier this year, New York Community Bancorp (NYCB.US) was in crisis as the bank had to set up more provisions for real estate loan losses.

Worries about the real estate market are spreading in the banking system. Currently, it is unclear when the pressure will ease, as institutions that accept deposits are preparing to deal with $441 billion of real estate debt due this year.

Investment banker Nicole Schmidt, managing partner of Oberon Securities, said: 'This industry operates on a herd mentality.' So, when information is exposed, people will instinctively sell the entire category. This is the cockroach theory: if there is one cockroach, there will be thousands.

Axos said in a statement on Tuesday that the allegations by short-seller Hindenburg Research contained a number of 'inaccuracies'. The bank's $5.2 billion commercial real estate professional loan division operates 'almost entirely' through fund relationships, a structure that provides Axos with 'strong collateral protection even in adverse market conditions'.

High borrowing costs have hit real estate valuations, and the uncertainty of the Fed's rate cuts has added to this challenge. Some owners default, while others choose to abandon the buildings altogether. This puts loan institutions in a dilemma, as these assets are difficult to sell in a weak market.

'There are some problems emerging in the real estate industry,' said Josh Zegen, co-founder of loan institution Madison Realty Capital. 'We will see more of this situation this year, but you are starting to see more cracks.'

Comparison of Axos' commercial real estate debt exposure to peers.

The situation of each bank still needs to be observed. The maturity of loans is a particularly troubling issue, and both borrowers and lenders must consider the change in valuation. Although in some cases, the decline in house prices is significant - the sale price of an office building in Los Angeles has fallen 52% from five years ago - the price of each property is different.

However, investors are looking for any clues about bank risks.

'I do think there will be a lot of surprises,' said David Aviram, head of the New York investment firm Maverick Real Estate Partners. 'The real question for banks is whether they will be forced to sell and what options they have when these loans come due and they cannot pay them back.'

Rocky road ahead.

Hindenburg Research released a report on Tuesday targeting Axos' commercial real estate exposure and 'excessive' valuation premiums, making Axos the latest bank under close scrutiny. Hindenburg said it shorted Axos shares, meaning it will profit if its allegations cause the stock price to fall.

Axos shares fell 16% at one point, marking the largest single-day drop since March 2020, before narrowing the decline.

'Markets are beginning to adjust,' said Tim Coffey, analyst at Janney Montgomery Scott. 'There haven't been any large write-downs of their portfolios in years.'

Other banks are also trying to ease concerns. After Citigroup released its report, Bank OZK published more details about the real estate loans framed in the report, expressing confidence for both projects. New York Community Bancorp appointed new leadership and secured investments from investors, including former US Treasury Secretary Steven Mnuchin. The bank has since agreed to sell $5 billion of loans to JPMorgan to help release more cash.

The road ahead is not smooth. As more real estate is being sold off, the decline in valuations cannot be ignored. The various real estate prices monitored by data analysis company Green Street have fallen across the board in the past year until April, with the exception of one bright spot: shopping center prices have risen 1%.