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Commercial Real Estate
Commercial real estate is also facing what
Bloomberg calls, “a slow-motion crisis.”12
When savings accounts were paying low
rates of return, commercial real estate
became an attractive haven for better
yields. But as central banks dramatically
raised
rates
to
combat
inflation,
commercial properties started looking like
volatile investments, particularly as ‘work
from home’ took over corporate culture
causing many companies to dramatically
reduce office space.
As tenancy rates collapsed and commercial real estate prices
floundered, banks, particularly small banks were left holding trillions in
commercial property debt and delinquent loans. According to the Wall
Street Journal, small banks currently hold over $2 trillion in commercial
real estate debt or almost 80% of commercial mortgages held by all
banks.13 And, an infamous ‘Wall of Maturity’ is now approaching as
scores of loans are set to mature and subsequently come due for
payment.
12 https://www.bloomberg.com/news/articles/2023-11-06/how-home-working-interest-rates-tipped-commercial-
propertyinto-crisis
13 https://www.wsj.com/articles/commercial-property-debt-creates-more-bank-worries-b36184ba
14 https://www.bloomberg.com/news/articles/2023-04-08/a-1-5-trillion-wall-of-debt-is-looming-for-us-commercial-properties
15 https://www.goldmansachs.com/intelligence/pages/stress-among-small-banks-is-likely-to-slow-the-us-economy.html
Smaller Banks Pushed Into Commercial Real Estate Lending
■ Reginal/Local Banks ■ CMBS ■ Investor-Driven ■ Private/Other
■ Government Agency ■ Insurance ■ International Bank ■ National Bank
2017
2018
2019
2020
2021
2022
50
100%
Source MSCI
Percentedages are rounded
“Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of
2025. The big question facing those borrowers is who’s going to lend to them? ‘Refinancing risks
are front and center’ for owners of properties from office buildings to stores and warehouses,
Morgan Stanley analysts including James Egan wrote ... ‘The maturity wall here is front-loaded.
So are the associated risks.’ The investment bank estimates office and retail property valuations
could fall as much as 40% from peak to trough, increasing the risk of defaults.”14
While the U.S. banking system is still reeling from the Banking Crisis of 2023 which saw the second and
third largest bank failures in U.S. history, it is the small and regional banks that power the economy.
According to Goldman Sachs, “Small and medium-size banks play an important role in the American
economy. Lenders with less than $250 billion in assets account for roughly 50% of U.S. commercial
and industrial lending,” and as these banks are stressed and lending is tightened, it could significantly
impact U.S. economic growth.15