NEW
YORK, Nov. 20, 2024 /PRNewswire/ -- Changes in
post-pandemic behavior and a larger debt service due to higher
interest rates presents challenges to the viability of many
commercial real estate borrowers. While those headwinds will lead
to higher defaults, stress will differ across asset classes and
could take longer to play out than many think. The newly published
report, Commercial Real Estate Outlook: Weathering the
Storm, is part of S&P Global Market Intelligence's Big
Picture 2025 Outlook Report Series.
In this new report, S&P Global Market Intelligence's
Financial Institutions Research Team discusses how insurers, banks
and their regulators are responding to concerns over potential
stress in the commercial real estate (CRE) market. The report
includes details on recent investment activity from life insurers
in the CRE market and expectations for future loss content banks
will record from the CRE segment. The report also highlights how
publicly traded real estate investment trusts (REITs) can offer
some insight into market conditions since they trade daily.
"Commercial real estate borrowers' mettle will be tested over
the coming year as they seek to refinance loans coming due. Many
borrowers will find credit less available or at least significantly
more expensive, leading to more defaults, particularly in the
office segment, but not all CRE loans face the same fate," said
Nathan Stovall, director of
financial institutions research at S&P Global Market
Intelligence. "Any pain should not be great enough to spur
deleveraging in the financial system and threaten the US
economy."
Key highlights from the report include:
- Banks with elevated CRE exposures have faced scrutiny from
regulators and investors. Banks will feel some pain in their CRE
books, particularly as borrowers seeking to refinance maturing
credits find it more difficult to access credit, or they will at
least face a significantly higher debt service given the increase
in interest rates.
- S&P Global Market Intelligence's analysis of property
records nationwide found that approximately $950 billion of CRE mortgages were set to mature
in 2024 and carried rates nearly 200 basis points below those
originated this year.
- Office REITs continue to trade at vast discounts to their
estimated net asset value estimates, but valuations have improved
from the low point in 2023.
- Despite asset quality concerns, life insurers holdings of
mortgage loans have continued to reach record highs in 2024.
To request a copy of Commercial Real Estate Outlook:
Weathering the Storm, please contact press.mi@spglobal.com.
S&P Global Market Intelligence's opinions, quotes, and
credit-related and other analyses are statements of opinion as of
the date they are expressed and not statements of fact or
recommendation to purchase, hold, or sell any securities or to make
any investment decisions, and do not address the suitability of any
security.
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Media Contact
Katherine Smith
S&P Global Market Intelligence
+1 781-301-9311
katherine.smith@spglobal.com or press.mi@spglobal.com
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SOURCE S&P Global Market Intelligence