That doesn’t translate to good cash flow metrics for the lender. We’re running into a situation where office-owners have to refinance at a higher rate and only 50% of the building is being used. That’s something you should have your eye on, especially as low-interest office loans come due. There’s been a fundamental shift in how we use office space and that has changed demand. It’s different for office and retail properties. The underlying fundamentals of multifamily and industrial assets remain relatively stable on a national level. And if you’re a bank, it’s a lot more difficult to lend against the value of a building if you don’t know what the value of the building really is.Ī lot of people hear commercial real estate and they think it’s all the same thing and the trends are they’re all the same but they’re not. Economic uncertainty will exacerbate that trend. There’s no broad agreement on asset valuations. You get this gap opening up between sellers and buyers: Sellers want to get late 2021 prices and buyers are saying ‘we don’t know what things are worth so we’ll give you this lowball offer.’ That was already happening and the result of that price differential was bringing deal activity down. That means small and medium-sized banks are going to tighten lending standards even more, making it more difficult to get loans.ĭoes the possibility of a looming recession play into this?Īs credit becomes scarcer and more expensive, it’s hard to know exactly what buildings are worth. I think more regulatory scrutiny is coming for smaller banks, which tend to have a larger concentration of commercial real estate loans. How do you expect banking turmoil to make things worse? Credit was getting scarce for all commercial real estate and a fresh bank failure on top of that only exacerbates that trend. Now private lending to the industry is starting to slow as well - bank lending was beginning to dry up over a month before the Silicon Valley Bank failure even happened. Office properties have been more challenged than others for obvious reasons. Price growth is slowing and for some asset classes it’s starting to decline. So the health of the market has an impact on the larger economy, even if you’re not interested in commercial real estate for commercial real estate’s sake. Xander Snyder: Banks have a lot of exposure to commercial real estate. This interview has been edited for clarity and length.īefore the Bell: Why should retail investors pay attention to what’s going on in commercial real estate right now? So just how big of a deal is this threat to the economy? Before the Bell spoke with Xander Snyder, senior commercial real estate economist at First American, to find out. Real estate is the most shorted industry globally and the third most in the United States, according to S&P Global. Recently, short-sellers have stepped up their bets against commercial landlords, indicating that they think the market will continue to fall as regional banks limit access to credit. “And I do think that is going to be something that will be important to watch over the coming months and quarters.” “I do think you will see banks pull back on commercial real estate commitments more rapidly in a world they’re more focused on liquidity,” wrote Goldman Sachs Research’s Richard Ramsden in a note on Friday. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists. Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe. Recent banking stress will likely add to those woes. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. Economists are growing concerned about the $20 trillion commercial real estate (CRE) industry.Īfter decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |