The commercial real estate market is in trouble. Scroll through headlines and it’s one doom headline after another.
The worries check out. According to the Mortgage Bankers Association, some $930 billion in loans come due in the US, in 2024 alone.
commercial real estate – ProsperAI
This number is higher than expected because loans are being extended and reworked. Borrowers and lenders are holding out and kicking that proverbial can down the loss road.
Many involved, worry about dealing with this debt. The uncertainties and risks that come with it represent significant time and capital.
As many public companies report earnings, we learn more about their current challenges. Digging in and being patient present possible opportunities as well.
Keep in mind that The Federal Reserve has signaled a pause in interest rate increases. Their shift from increasing to holding may allow for more dealmaking to take place in 2024.
This policy-making pause may help clear up market conditions. Enough to get things going again.
But, there are worries despite the optimism. The $930 billion in loans coming due is a large chunk of the $4.7 trillion commercial real estate debt market. The almost 20% exposure makes regulators and investors nervous. Some lenders and investors are feeling the pressure of increased defaults and losses.
Banks make home to many of these loans, holding $440 billion of them. Nonbank lenders also carry a large exposure, totaling over $400 billion.
The office sector is a concern, with 25% of loans due this year. Office values are down quite a bit. Post-pandemic adjustments are looking more permanent. Plus, vacancies continue to remain stubbornly high. The commercial real estate landscape doesn’t seem to be heading down the right road, quite yet.
Stakeholders remain on high alert while seeking to be flexible. To date, these seem to be strategies for buying time.
Even though there will be challenges, there will also be windows of opportunity. By staying informed, being flexible, and taking action, participants may get through the tough times and come out stronger. As we head into 2024, one thing is clear: the face of commercial real estate will be different. The market will find a way to accept, work through, and come out stronger.
It’s the American Way.
