Real Estate Industry Woes Worsen As Banks Fall

A few weeks ago, Before the Bell wrote about big problems brewing in the $20 trillion commercial real estate industry. After decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall, Julia Horowitz reported for CNN.

Photo Insert: The proportion of commercial office mortgages where borrowers are behind with payments is rising.

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. Fed efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.

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.

About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists.

"We're watching it pretty closely," said Michael Reynolds, vice president of investment strategy at Glenmede, a wealth manager. While he doesn't expect office loans to become a problem for all banks, "one or two" institutions could find themselves "caught offside."

The proportion of commercial office mortgages where borrowers are behind with payments is rising, according to Trepp, which provides data on commercial real estate. High-profile defaults are making headlines.

Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City.

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