USA’s Commercial Real Estate Faces Potential Disaster
Real estate experts have warned that a potential financial disaster is looming over America’s debt-ridden commercial real estate sector, and it could boil over by next year. Markets have been concerned about commercial real estate since the beginning of 2023, when the collapse of Silicon Valley Bank raised concerns about the $1.5 trillion of debt in the sector approaching maturity.
According to a recent estimate from Capital Economics, office property prices are likely to fall by a further 20% in 2024, citing weak growth and still-high interest rates. The firm predicted a peak-to-trough decline of 43% in the US office market, warning that it could take two decades or more for property values ??to return to their peak in the early 2020s.
According to a recent working paper from the National Bureau of Economics, banks could lose about $160 billion from commercial real estate, about a quarter of the average lender’s assets. Other market commentators, such as hedge funder Kyle Bass, have predicted losses of up to $250 billion.
Big banks like JPMorgan, Goldman Sachs and Capital One are already trying to remove risky properties from their commercial real estate portfolios. However, some are having trouble securing a buyer and are trying to negotiate a better deal.
About 14% of all commercial real estate properties are already in a “negative equity” situation, meaning the value of the…
