The commercial real estate crisis that broke out in the USA after the COVID pandemic cannot be prevented. There was a record 117% increase in commercial real estate foreclosures in March.
The commercial real estate market continues to be crushed by high interest rates and remote work, which has become a way of life after the COVID pandemic.
According to the news of Dunya newspaper, commercial real estate companies in the USA, which first started to raise alarms last year, began to experience difficulties in repaying loans to banks because they could not fill the offices. According to a new report published by US real estate data provider ATTOM, there were 625 commercial real estate foreclosures in the country in March. This figure means an increase of 6% compared to February and 117% compared to the same period last year.
California was the place with the most commercial foreclosures in March, with 187 properties. While this marks an 8% decrease from the previous month, it represents a stunning 405% increase from the previous year: “California began experiencing a significant increase in commercial foreclosures in November 2023, surpassing 100 cases and continuing to increase thereafter.” American Fox TV, which headlined the report and pointed out that there were significant increases in commercial foreclosures in New York, Florida, Texas and New Jersey last month, made the following comment: “Foreclosures have increased steadily since May 2020, when they reached a record low of just 141 properties.
At the time, the U.S. economy was still in the throes of the COVID-19 pandemic, and many lenders were offering business loan terms to borrowers to help them stay afloat. “But these agreements have largely expired and the commercial real estate market is now struggling with a number of challenges, including higher interest rates and reduced demand for office space as more companies allow employees to work from home.”
REPORT: ONE IN 5 OFFICE LOANS IS DOMINATED TO BAIL
JPMorganChase analyst Kabir Caprihan warned in a March 24 report that 21% of office loans are doomed to fail, with lenders losing an average of 41% of loan principal due to failure. This creates a potential loss of value of 8.6%, with banks losing $38 billion on office mortgages, Caprihan said. But it’s not clear why so many projects will fail or why declines in value will be so steep.
$929 BILLION LOAN WILL COM DUE IN 2024
About $929 billion worth of commercial real estate loans will come due this year, according to the U.S. Mortgage Bankers Association. Borrowers may have no choice but to refinance at significantly higher interest rates or sell their property at a large loss. The situation is further complicated by the fact that small and regional banks are the largest source of credit in the $20 trillion commercial real estate market and hold nearly 80% of the industry’s outstanding debt.
“THIS IS SOMETHING WE WILL WORK ON FOR MANY YEARS”
In his statement at the beginning of March, US Federal Reserve (Fed) Chairman Jerome Powell said that commercial real estate problems would probably lead to some bank bankruptcies, but would not pose a greater threat to the financial system. Speaking at Congress, Powell said, “We identified banks with high concentrations of commercial real estate, primarily office and retail, and other banks that were hit hard,” and added: “I’m sure this is a problem we will be working on for many years to come. There will be bank failures, but not in the big banks.”
Source: Patronlardunyasi / Prepared by Irem Yildiz