Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, a sign of their determination to reduce exposure to the teetering commercial real estate market, per FT.
— unusual_whales (@unusual_whales) June 6, 2023
Good Morning Everyone! Delinquencies spiked in May on mortgage bonds tied to offices. Vacancy rates on office space across the U.S has hit a record +16%.
LA is at +30% vacancy for downtown office space.
Yikes. pic.twitter.com/xKg9jIsW9W
— Genevieve Roch-Decter, CFA (@GRDecter) June 6, 2023
Another article — this one from the @WSJ — on the upcoming mountain of refinancing for the commercial real estate sector in the US … and what some lenders are doing ahead of these maturities.t.co/OG06ZvhEYh#economy #markets #econtwitter #realestate pic.twitter.com/37TEp1K4uI
— Mohamed A. El-Erian (@elerianm) June 6, 2023
Some $1.5 trillion in real-estate mortgages will come due in the next two years – paving the way for a potential financial crisis as higher interest rates push down property values.
As this event looms, big banks such as Wells Fargo are already cutting their losses by preparing to offload debts at a discount even when borrowers are up to date – a sign of their lack of faith in the once stalwart commercial real estate market.
Meanwhile, higher interest rates meant to hamper inflation continues to push down property values by deterring buyers – a phenomenon compounded by continued office vacancies.
The pandemic-induced phenomenon comes as remote work has maintained prominence since its surfacing during the pandemic – and advent that has hammered offices, and now the banks’ providing them property loans.
The willingness of some lenders to take losses on real estate loans that as of now are performing comes as multiple experts continue to warn the asset class is the ‘next shoe to drop’ following the recent turmoil in the banking industry – increasing the likelihood of another recession wrought by a mortgage crisis.