The commercial real estate sector in the US is in a crisis situation. Major office properties are facing defaults on their loans and there are billions in loans coming due in the next few years.
TGP reported previously on the commercial real estate sector.
The beginning of the end of the Brandon economy is here. Americans are suffering under record inflation, increased lending rates, and ultimately banks failing. Now the banks have to contend with the commercial real estate collapse in historic proportions.
The best commercial real estate is rated class A. This is the best commercial real estate that is expected to maintain its value and more likely grow in value. But this isn’t happening in the Brandon-Obama economy.
One example is a pair of class-A office towers in California that recently sold at a 36% discount.
BIDEN ECONOMY: Commercial Real Estate Market Is Getting Crushed – Some of the Best Properties Are Selling at a 36% Discount
Yesterday Zerohedge sounded the alarm on this sector, this time with a focus on Washington, D.C.:
With recent stress in the regional banking sector, sentiment in US commercial real estate (CRE) – and especially the office sector – has turned negative as investors prepare for potential spillover effects (with JPM, Morgan Stanley, and Goldman Sachs all joining the gloom parade), especially as high-profile defaults continue to make headlines as borrowers face higher debt service costs and refinancing becomes much harder ahead of a $400 billion CRE debt maturities this year alone.
The latest headline fueling concerns about a potential CRE crisis involves a fund belonging to CRE giant Brookfield defaulting on a $161.4 million mortgage for twelve office buildings in Washington, DC.
According to Bloomberg, the loan was transferred to a special servicer working with “the borrower to execute a pre-negotiation agreement and to determine the path forward.”
Real estate data firm Green Street said DC office space values had slid 36% through March compared with a year ago due to rising vacancies amid the rise of remote and hybrid work post-Covid.
According to Zerohedge, the US is facing $400 billion in commercial property loans maturing this year and $2.5 trillion maturing in the next 5 years.
Regional banks have the lion’s share of the debt covering commercial real estate. With the failure of Silicon Valley Bank, these banks’ balance sheets have come into focus. Their commercial assets are a major concern.