- Stress is mounting in US commercial real estate, with distressed assets surging to $64 billion, per Bloomberg.
- What’s worse is that another nearly $155 billion of CRE assets are at risk of turning bad.
- Higher borrowing costs, tightening credit, and remote work trends have created a perfect storm for property owners.
Loading
Something is loading.
Thanks for signing up!
Access your favorite topics in a personalized feed while you’re on the go.
download the app
A commercial real-estate crisis may be brewing in the US, with tens of billions of dollars worth of assets slipping into distressed category as high interest rates squeeze borrowers.
The amount of troubled CRE assets, meaning properties that are forced to be sold as owners can’t afford to pay their mortgages, jumped by 10% in the first quarter to about $64 billion, per an MSCI Real Assets report, cited by Bloomberg. Another $155 billion of assets may be at risk of turning bad, according to the outlet.
CRE mortgage delinquencies rose to 3% in the first three months of 2023, according to the Mortgage Bankers Association.
“Should this potential distress be upgraded to full-blown trouble, an increase in distressed asset sales and declining prices would be inevitable,” MSCI Real Assets researchers Jim Costello and Alexis Maltin said in the report, per Bloomberg.
US commercial property owners have struggled over the past year as steep interest-rate increases by the Federal Reserve – aimed at cooling inflation – chipped away at their ability to meet mortgage payments. At the same time, tightening credit conditions and work-from-home trends are adding pressure on the industry.
It’s sparked widespread concern that commercial property could be the next industry to slip into turmoil, following the banking-sector chaos of recent months. Regional banks, specifically, are at the brunt of it all, given that smaller banks finance around 60% of all commercial real-estate debt.
According to the MSCI Real Assets report, US retail properties were under the most pressure, as nearly $23 billion worth of assets were distressed, Bloomberg reported.
With the possibility of higher interest rates this year as suggested by the Fed, market commentators have warned that commercial property prices could tumble by as much as 40% from their peak in a worse disaster than the 2008 financial crisis.