With rates unexpectedly high, a wave of CRE foreclosures looms large.

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The commercial real estate (CRE) market is facing a surge in foreclosures as rising interest rates make refinancing unaffordable for many property owners.

CRE foreclosures have risen by 117% year-over-year, with March 2024 seeing 625 commercial foreclosures—the highest monthly total since March 2015. States like California, New York, and Florida are among the hardest hit, with California experiencing a 238% increase in CRE foreclosures.

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Approximately $950 billion in CRE mortgages are set to mature in 2024, with the total expected to peak at $1.26 trillion in 2027. Borrowers facing higher interest rates may struggle to refinance, risking defaults and further pressure on CRE prices.

The office real estate sector is under particular strain as hybrid work models slow the recovery in office utilization, compounding the refinancing challenges for office properties. While some experts expect foreclosures to continue rising, others see early signs of recovery with a recent increase in commercial property transactions in September 2024.

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