It is time to take a “unified view” of real estate. What happens in one segment of the market has effects on other segments. What happens in the commercial market will have some effect in the residential market, industrial market, etc.
Some facts behind the speculation of a commercial real estate disaster in the next 2 years, and what it could mean to the US economy…
$1.5 trillion in commercial real-estate mortgages will come due in the next two years.
According to the Mortgage Bankers Association, about $117 billion in loans is expected to be due this year and needs to be repaid or refinanced.
At the same time, revenue from office space has fallen as many businesses downsized their footprint as many of their staff have continued working from home since the pandemic.
Moody’s Analytics estimates 224 of the 605 loans that will expire soon will be tough to repay or refinance because their owners have too much debt or the buildings aren’t making them enough money.
The Seagram building on Park Avenue in Manhattan, which was mortgaged at $760 million in 2012.
The loan was made assuming the building would bring in $74 million in revenue a year, but the best it ever did was $69 million in 2018 – and only $27 million in 2022, according to the Financial Times.
Hundreds of loans on office buildings are about to come due at a very bad time. Owners of office space around the country took out their loans when interest rates were half what they are now and may not be able to refinance them at higher ones. Work from home has persisted beyond the pandemic.
Loans were taken out in time of low interest rates and are now hard to refinance.
Many commercial loans defaulting could trigger banking crisis and hurt economy.