Data from the Mortgage Bankers Association has revealed that $117 bn of commercial real estate loans linked to offices in the United States need either repayment or refinancing in 2024, Invest-Gate reports.
The key dilemma lies in nearly doubling commercial mortgage rates. At the same time, the performance of many buildings or demand for them has decreased, increasing the likelihood of investors incurring billions in losses.
Moreover, expected losses, though smaller in scale compared to the 2008 mortgage crisis, could still lead to billion-dollar losses for investors and force some real estate development companies, like the Austrian Cigna Real Estate, into dissolution and trigger forced sales in the already distressed office market.
Furthermore, in December, the director of insolvency at Cigna offered to urgently sell half of the Chrysler Building in New York to raise the necessary funds.
Richard Hill, Head of Real Estate Strategy at Cohen & Steers, noted that overcoming the office market downturn is just beginning and is not fundamentally driven but rather linked to rising financing costs.
As investors await the Federal Reserve to potentially lower interest rates again, refinancing operations continue. Banks hold about two-thirds of upcoming due real estate loans. While delinquency rates are rising, particularly for higher-quality or less-leveraged buildings, they remain extremely low, according to the report.
Despite decreasing delinquency rates, the losses on these loans can still be significant. In December, a group of American economists found that 40% of office loans in bank public budgets are at risk, posing a problem for dozens of regional banks holding them.
Leo Huang, Head of Commercial Real Estate at Ellington Management, emphasized, “People need to realize that regional banks are still highly exposed to troubles in commercial real estate.”