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FSOC Flags Outstanding CRE Loans as Major Risk to U.S. Economy
The Financial Stability Oversight Council (FSOC) has identified commercial real estate among the major financial risks to the U.S. economy in 2024, the Real Estate Roundtable reported. Citing nearly $6 trillion of commercial real estate loans outstanding in the second quarter of 2023, roughly half of which are held by U.S. banks, FSOC’s 2023 Annual Report flagged concerns about “a substantial volume” of these loans that are set to mature in the next few years.
“Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE,” the report stated. “Maturing loans and expiring leases amid weak demand for office space have the potential to strain office sector conditions further, which could cause stress to spread beyond this segment of the CRE market.”
In an op-ed for the Urban Land Institute, Roundtable SVP Clifton E. Rodgers, Jr. wrote, “To help rebalance these maturing loans, it is important to advance measures that will encourage additional capital formation. To that end, it is essential to bring more foreign capital into U.S. real estate by lifting legal barriers to investment, as well as to repeal or reform the archaic Foreign Investment in Real Property Tax Act (FIRPTA). Importantly, policymakers must not hike the tax rate on capital gains, end carried interest or alter the 1031 like-kind exchange provisions.”
- ◦Financing
- ◦Economy
