Banking rollercoaster: From denial to acknowledgment, uncertainty surrounds likelihood of commercial bank failures.
Real estate magnate Barry Sternlicht has sounded the alarm on the challenges facing the commercial real estate (CRE) sector, particularly the office market, labeling it an “existential crisis.” Sternlicht estimates that the $3 trillion asset class is now likely worth around $1.8 trillion, signaling a potential $1.2 trillion in losses spread across the industry. The impact is not isolated, as even US Treasury Secretary Yellen has expressed concerns about the commercial real estate landscape, anticipating stress on property owners during the refinancing of real estate loans amid high vacancies.
Japanese bank Aozora’s recent stock collapse further amplifies the global reach of the CRE crisis, with the bank reporting massive exposure to US commercial real estate. The situation is exemplified by the sale of the Xerox building in Washington DC, which, after a decade, was sold for $25 million, reflecting an 83% loss from its purchase price of $145 million in 2011. The buyer’s intention to convert the office building into apartments underscores the changing dynamics in the real estate market.
Daily headlines reflecting such drastic losses in the CRE sector indicate a deepening crisis, raising comparisons to the 2008 financial downturn. A recent study from USC, Columbia, and Stanford suggests that US banks, particularly regional banks, could face a staggering $160 billion blow due to the impact of high-interest rates.
While this looming crisis hasn’t fully manifested in the data yet, signs of trouble are evident. New York Community Bancorp experienced a significant stock loss of -38% over CRE stress, leading to a -6% decline in the KBW Regional Banking Index. This single-day loss for KBW was the largest since the New York Community Bancorp meltdown in March of the previous year, prompting concerns about the stability of regional banks amid the unfolding CRE crisis. The industry now anxiously awaits whether prices will stabilize or if further disruptions are on the horizon.
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Bank failures won’t happen
Bank failures may happen
Bank failures are likely to happen but will not cause economic stress
Commercial bank failures are inevitable but we’ll fire up the discount window
Commercial bank failures whoops
— Don Johnson (@DonMiami3) February 6, 2024
US Treasury Secretary Yellen: I have concerns about commercial real estate… The refinancing of real estate loans amid high vacancies will put a lot of stress on property owners.
— unusual_whales (@unusual_whales) February 6, 2024
Barry Sternlicht recently spoke about the challenges in commercial real estate. He stated that the office market has an existential crisis and it's a $3 trillion asset class that's probably worth $1.8 trillion now. There are $1.2 trillion of losses spread somewhere, and nobody… t.co/EKuAlNrqmd pic.twitter.com/nmDyXkaQmc
— Hussein E (@therealhebrahim) February 1, 2024
Is the commercial real estate crisis beginning to hit?! t.co/R6BztdomUL
— Peruvian Bull (@peruvian_bull) February 2, 2024
Shares of Japanese bank Aozora are collapsing. Stock's on steepest 2-day drop since it became a public company.
Why? Bank reported massive exposure to US commercial real estate. pic.twitter.com/3WXmlFEny2
— David Ingles (@DavidInglesTV) February 2, 2024
Looks like the CRE is in trouble.
Might be worse than 2008- a new study from USC, Columbia, Stanford, examining the impact of high interest rates on US banks, also says that they could face a massive $160 billion blow.
We're not seeing this in the data yet: pic.twitter.com/cxwFd9PBcr
— Phoenix Capital (@PhoenixCapitalH) February 1, 2024
🚨The commercial real estate crisis may be triggering a regional banking panic
On Weds, New York Community Bancorp lost -38% over CRE stress, sending the KBW Regional Banking Index down -6%
It was KBW’s largest one-day loss since $NYCB meltdown last March. We'll have to see if… pic.twitter.com/Jr6iCvSJzH
— Composer (@ComposerTrade) February 2, 2024
POWELL: DOESN'T SEE COMMERCIAL REAL ESTATE LOANS AS THE MAKINGS OF A CRISIS AS SEEN IN THE PAST pic.twitter.com/8lt8JBTsXg
— yvsx (@yvsx) February 5, 2024