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Analysts: CRE Facing “Typical Down Cycle” Rather Than a Crash
$3.1 trillion in commercial real estate loans outstanding. An office sector beset by record-high vacancies. Landlords facing higher interest rates as they seek to refinance loans, there are reasons to think the road ahead will be rocky for the commercial real estate industry and the banks that depend on it, CNBC reported Monday, in an article headlined “The Coming Real Estate Crash That May Never Happen.”
However, CNBC added that credit in CRE has performed well until now, and it’s far from clear that U.S. credit issues spreading outward from real estate is likely.
“There’s a lot of headaches about calamity in commercial real estate,” Kevin Fagan, director of commercial real estate analysis at Moody’s Analytics, told CNBC. “There likely will be issues but it’s more of a typical down cycle.”
Fagan cited reasons to believe lending issues in CRE will be contained. The first is that the office sector is only one part of commercial real estate, albeit a large one, and the other major sectors are in “unusually good shape,” CNBC reported.
Currently about three-fourths of commercial real estate debt generates enough income to pass banks’ recent refinancing standards without major changes, Fagan told CNBC.
“Delinquencies are still lower than pre-pandemic,” Alexander Yokum, banking analyst at CFRA Research, told CNBC. “Any credit metric is still stronger than pre-pandemic.”
That being said, Ken Leon, who follows REITs for CFRA Research, told CNBC, “Market conditions are fine today, but what develops over the next two to three years could be pretty challenging for some properties.”
- ◦Financing
