by Simian_Stacker
The commercial real estate market is a major risk to the financial system, with higher interest rates and office vacancies pushing down property values.
via yahoo:
As the federal government strives to contain financial market turmoil, the next risk looming over the nation’s banks is in plain sight: the $20 trillion commercial real estate market.
Some $1.5 trillion in mortgages will come due in the next two years, a potential time bomb as higher interest rates and spiraling office vacancies push down property values.
And because 70 percent of bank-held commercial mortgages sit on the balance sheets of regional and smaller lenders, a write-down in commercial loans could spell big trouble for the financial system and spill over into the larger economy just as the 2024 presidential campaign gets underway.
With the country careening toward a possible recession, the financial system is especially vulnerable to shocks as the turbulence sparked by the collapse of three regional banks showed. Adding a commercial real estate market slide to the mix would be particularly perilous. It’s a concern that’s top of mind for policymakers in Washington — even as they acknowledge there’s not a lot they can do to fend off a crisis.
“Am I worried? The short answer is yes,” Sen. John Kennedy (R-La.), a senior member of the Senate Banking Committee, said in an interview. “The long answer is hell yes.”
US banks are preparing to sell off property loans at a discount due to fears of an increase in delinquencies and a slowdown in demand for commercial mortgage-backed securities.
via FT:
Lenders prepare to offload debt at a discount even when borrowers are up to date on payments
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.
The willingness of some lenders to take losses on so-called performing real estate loans follows multiple warnings that the asset class is the ‘next shoe to drop’ after the recent turmoil in the US regional banking industry.
“The fact that banks want to sell loans is coming up in a lot of conversations,” said Chad Littell, an analyst at CoStar, a research company focused on commercial real estate. “I am hearing more about it than any time in the past decade.”
From the @FT article on "US #banks prepare for losses in rush for commercial property exit."
Worth keeping an eye on this given the size of outstanding loans and, also, the maturity structure in a "higher-for-longer" rate world where refinancing may prove challenging for some. pic.twitter.com/dPsFB49If4— Mohamed A. El-Erian (@elerianm) June 5, 2023
Park Hotels & Resorts makes ‘difficult, but necessary’ decision stop payments on San Francisco CMBS loan (banks holding CRE portfolios in US cities are in for a deliverance-style reaming as cascading defaults accelerate the wipeout of Yellen Bux “value” from their loan collateral)
REIT stops payments on CMBS loan to reduce exposure to San Francisco market due to record office vacancy.
via MarketWatch:
Shares of Park Hotels & Resorts Inc. PK, +0.36% fell 0.7% in premarket trading Monday after the lodging real estate investment trust (REIT) said it made the “very difficult, but necessary” decision to stop payments on its $725 million commercial mortgage-backed security (CMBS) loan secured by two of its San Francisco hotels. The REIT said it plans to work with the loan’s servicers to determine the best path, which is expected to be the eventual removal of the hotels from its portfolio. The hotels are the Hilton San Francisco Union Square and the Parc 55 San Francisco. “After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market,” said Chief Executive Officer Thomas Baltimore. Among the challenges that make recovery in the San Francisco market “cloudy” are record office vacancy, street-condition concerns and a weaker-than-expected citywide convention calendar. The stock has rallied 16.5% year to date through Friday, while the Real Estate Select Sector SPDR exchange-traded fund XLRE, -0.46% has slipped 0.3% and the S&P 500 SPX, -0.20% has advanced 11.5%.
Americans removed $472 billion out of their bank accounts in the first quarter of this year, an all time record since 1984, per the FDIC.
— unusual_whales (@unusual_whales) June 5, 2023
CMBS Delinquency Rate Shoots Up in May 2023 – Biggest Jump Since June 2020: Overall Rate Hits 14-Month High
– In May 2023, the overall Trepp CMBS delinquency rate shot up 53 basis points to 3.62%.
– Offices Delinquencies jumped 125 basis points to 4.02% – First Time Since 2018… pic.twitter.com/uwHoj1ZRU7
— Ayesha Tariq, CFA (@AyeshaTariq) June 5, 2023