The crisis in the commercial real estate segment in the US is beginning to have a strong impact on the balance sheets, and therefore, on the survival of the many banks who granted loans for the purchase of this type of property.
For some time now we have seen banks creaking. The Federal Deposit Insurance Corporation (FDIC) indicated that there are 52 entities in trouble in the last quarter of 2023 and the situation is not improving. In recent days the alarm sounded even louder due to the sharp drop in the stock of New York Community Bank (NYCB), a bank with high exposure to commercial real estate.
We are talking about semi-empty buildings, whose owners today do not have enough income from rentals to be able to meet the monthly loan payments. In all cases we are talking about properties that if sold today, the property would not be able to cover the amount owed. The latter is precisely the factor behind the crisis of these banks.
Vacancy rates for offices and commercial premises are the highest in years. The COVID-19 pandemic accelerated the implementation of the home office format and generally speaking the credit crunch, higher interest rates and inflation are making construction and real estate less attractive.
Europe is not immune to the problem. A recent report from Morgan Stanley notes that major European banks have cut their lending to commercial real estate, even though they have half the exposure of their American counterparts. It is the worst crisis in the sector since 2008-2009.
The situation in China is worse, due to this and other issues that we will not address in this analysis.
The situation is complex. It is read that the value of office buildings in large cities is currently trading at less than half their pre-pandemic price.
In short, several more banks are going to be in trouble, with the aggravating factor that interest rates are going to remain high for much longer and that office prices will possibly continue to fall.
This week’s $1.05 billion capital raise has helped stem the decline in NYCB stock and ease near-term concerns, but exposure to New York’s rent-controlled multifamily properties (apartment buildings with more of four units) remains a problem.
Some tips to keep in mind: do not leave amounts greater than the FDIC insurance limit (US$250,000) in banks and consolidate your financial assets in brokers, where there are various ways to insure 100% of the capital and its interests.
The world is changing and what is stable lasts less and less. It is important to obtain advice to minimize contingencies and maximize opportunities.
Today it is commercial real estate, tomorrow it will surely be another sector.
CEO of FDI – Wealth Manager
Source: Ambito
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