US Banks on Alert Over Falling Commercial Real Estate Valuations

Financial Times (April 22, 2023) US banks are becoming increasingly worried about falling commercial property valuations and the risk they pose to lenders’ balance sheets, senior executives said this week.Office valuations in particular have been pummeled by rising interest rates and many employees’ preference for working from home since the coronavirus pandemic. However, financial executives sought to reassure investors that they did not foresee significant systemic risk because holdings are broadly distributed among banks and other institutions. Property group Brookfield added to a growing number of high-profile defaults this week by walking away from $161mn of loans tied to a group of mostly suburban office buildings near Washington. In February it handed back the keys to two prime Los Angeles office towers. Blackstone and Pimco have in recent months also given up on some of their office investments rather than continue with lossmaking bets. “If you have maturing debt, you can’t carry the existing debt load and you’re not willing to put more money in, then it’s foreclosure,” said Tony Natsis, head of the real estate group at law firm Allen Matkins. He added, however, that lenders would prefer to modify existing loans: “They’re asking themselves ‘do I really want to take this back in a bad market?’” Read More (subscription required)