Commercial Real Estate Recession
Commercial Real Estate Recession 2023
The Federal Reserve is eying commercial real estate as a looming risk to the U.S. economy. According to a survey conducted by the central bank, real estate is one of the top five potential risks to U.S. financial stability in the next 12 to 18 months. Banks in the U.S. today, hold nearly $3 trillion in Commercial Real Estate Debt. That’s twice as much as what Subprime Debt was in the 2008 real estate crisis.
Now some owners of commercial properties are going into default.
Commercial Real Estate Recession 2023
Some say that commercial real estate values have already dropped 11% in the last year, with some properties selling for a 90% loss. This commercial real estate collapse is going to cause problems for the US Banking Sector.
For office buildings the default rate is surging. As more of these commercial real estate mortgages go into default, there will be increasing pressure on banks to cut back new lending and to hold more cash. Such a bank action could trigger the existing credit crunch in the US economy to get even worse.
A worsening credit crunch would result in more layoffs and bankruptcies, and cause unemployment to rise.
In addition to office buildings, apartments and multifamily are also getting hit hard. Values in this sector are down by -12.5% already!
The reason apartment values are going down so much is because landlords bought building at aggressively low cap rates during the pandemic. Now the loans on those properties are coming due at much higher interest rates, which is resulting in distress. Some landlords are already defaulting on their mortgages, while others are refinancing at higher rates and losing money.
Commercial Real Estate Recession 2023
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