Market Extra: Bank jitters put spotlight on commercial real estate. 3 charts pinpoint the potential trouble spots.

by | Mar 21, 2023 | Stock Market

Banking sector jitters and higher interest rates likely spell trouble for the roughly $5.5 trillion U.S. commercial real estate debt market. The banking sector has been in the crosshairs of jittery investors since Silicon Valley Bank’s collapse in mid-March after it sold a portfolio of rate-sensitive “safe” securities at a loss, sparking a run on the bank by fearful depositors.

Since then, a subsidiary of New York Community Bancorp
snapped up assets and liabilities from the failed Signature Bank
at a 17% discount. However, the deal didn’t include its commercial real-estate portfolio, according to Barclays researchers, who viewed the development as “a negative” for commercial real estate, as the portfolio likely would have sold at a discount.  Another regional lender, First Republic Bank,
has been in the spotlight too, after it received a historic $30 billion injection in deposits from big American banks to shore up confidence in smaller lenders. Its shares rose 29.5% on Tuesday, but still were down 87% on the year to date, according to FactSet. “I don’t think it’s going to be a repeat of the 90s,” said Michael Thom, a partner at law firm Obermayer, referring to the boom and bust cycle in U.S. commercial real estate that led to a wave of bank failures. But Thom does see landlords already having a tougher time getting new loans, especially on half-empty office buildings due to flexible work arrangements. Here’s a look at 3 charts that highlight key areas of worry for commercial real estate and where debt tied to these properties resides in the U.S. banking system and beyond.Who holds the risk? Multifamily properties have been a “favored” property asset class in the wake of the global financial crisis, after a foreclosure wave hit underwater homeowners and boosted demand for rentals. Since that time, the federal government has come to own nearly half of the $2 trillion multifamily loan pie (see chart), according to Deutsche Bank research. Banks own almost half of the exposure to the rest of the $3.5 trillion in commercial property debt market.

Banks own a big slice of the commercial mortgage debt pie.

Deutsche Bank research

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