"Just Tip Of Iceberg": CMBS Storm Unfolds As Delinquent Office Loans Hit Five-Ye

[Ptarmigan]

"Just Tip Of Iceberg": CMBS Storm Unfolds As Delinquent Office Loans Hit Five-Year High
https://zerohedge.com/markets/just-tip-iceberg-cmbs-storm-unfolds-delinquent-office-loans-hit-five-year-high

The commercial real estate space is experiencing stress following the recent turmoil in the regional bank sector, with the rapid rise in interest rates, tightening lending standards, and structural changes, such as sliding demand for office buildings.

Some structural factors, such as remote work and hybrid work, have doomed the office space segment. This has left empty office buildings scattered across major US cities as the number of landlords falling behind on repayments due to the difficulty of refinancing and high vacancies has hit a five-year high.

According to real estate data firm Trepp, more than 4% of office loans packed into commercial mortgage-backed securities were delinquent in the last 30 days as of May, the highest level since 2018.

Is a commercial real estate crash coming?

Already, we have noted "CRE Giant Brookfield Defaults On $161 Million Debt For DC Office Buildings" and "San Fran's CRE Apocalypse: The City's Two Biggest Hotels Have Defaulted." And also cited data from Moody's Analytics that showed first-quarter CRE prices fell for the first time in over a decade.

Goldman Sachs chief credit strategist Lotfi Karoui told clients last month, "the most accurate portrayal of current market conditions" is data via the Green Street Commercial Property Price Index, which suggests trouble ahead.

Just how much danger? Karoui believes "Green Street indicates a 25% year-over-year drop in office property values and a 21% drop in apartment property values."

Commercial real estate value has dropped for the first time in over a decade.

[Ptarmigan]

Commercial real estate crash still looming over US economy
https://www.foxbusiness.com/economy/commercial-real-estate-crash-looming-us-economy

The threat of a commercial real estate market crash is hanging over the already fragile U.S. economy.

About $1.5 trillion in commercial mortgage debt is due by the end of 2025, but steeper borrowing costs, coupled with tighter credit conditions and a decline in property values brought on by remote work, have increased the risk of default.

Fitch Ratings already estimated that 35% — or $5.8 billion — of pooled securities commercial mortgages coming due between April and December 2023 will not be able to be refinanced.

"Commercial real estate is melting down fast," Tesla CEO Elon Musk said in a recent tweet. "Home values next."

Could the commercial real estate crash be on par with 2008? After commercial real estate, homes could be next.

"MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis," Shalett wrote in a weekly investment note. "More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points."

Complicating the matter is the fact that small and regional banks are the biggest source of credit to the $20 trillion commercial real estate market, holding about 80% of the sector's outstanding debt. Regional banks were just at the epicenter of the upheaval within the financial sector, and there are concerns that the turmoil could make lending standards drastically more restrictive.

During a credit crunch, banks significantly raise their lending standards, making it difficult for businesses or households to get loans. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end.

Many regional banks are credit sources for commercial real estate market.

[Old n Grumpy]

The vacant offices could be used to house the homeless