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American offices are half-empty. That could be the next big risk for banks. (CRE. )

Analysis by Julia Horowitz, CNN

"LondonCNN — 

From Dallas and Minneapolis to New York and Los Angeles, offices sit vacant or underused, showing the staying power of the work-from-home era. But clear desks and quiet break rooms aren’t just a headache for bosses eager to gather teams in person."

"Investors and regulators, on high alert for signs of trouble in the financial system following recent bank failures, are now homing in on the downturn in the $20 trillion US commercial real estate market."

"America’s top banker, JPMorgan Chase (JPM) CEO Jamie Dimon, told CNN Thursday that he couldn’t be sure whether more banks will fail this year. Yet he was quick to point out that the current situation was very different to the 2008 global financial crisis, when there were “hundreds of institutions around the world with far too much leverage.”

"You have fundamentals under pressure from work from home at a time when lending is less available than [it has been] over the last decade,” said Rich Hill, head of real estate strategy at Cohen & Steers. “Those two factors will lead to a pretty significant decline in valuations.”

"Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City."

"Signature Bank (SBNY) had the tenth biggest portfolio of commercial real estate loans in the United States at the start of the year, according to Trepp. First Republic (FRC), which received a $30 billion lifeline last month from JPMorgan Chase and other major banks, had the ninth largest."

"About $270 billion in commercial real estate loans held by banks will come due in 2023, according to Trepp. Roughly $80 billion, nearly a third, are on office properties."

"The worst outcome, according to Neil Shearing, chief economist at Capital Economics, is that a “doom loop” develops. Questions about the health of banks with sizable exposures to commercial real estate loans cause customers to pull deposits. That forces lenders to demand repayment — exacerbating the sector’s downturn and further damaging the banks’ financial position. That triggers more deposit outflows in a “vicious cycle.”

SOURCE:

https://www.google.com/amp/s/amp.cnn.com/cnn/2023/04/10/business/commercial-real-estate-banks-offices/index.html



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