Distressed Debt in US Commercial Real Estate Markets: Are US Lenders Positioned to Handle the Fallout from Office?

Bernhard Funk

ERES from European Real Estate Society (ERES)

Abstract: US commerical real estate markets have shown very low transaction activity in 2023. The begin of year 2024 has not brought significant change to this trend. 2024 will show an increase in commercial real estate debt volumes coming due. Following lower transaction activity, loan extensions and loan modifications are in demand from property owners. At the same time higher interest rates have prompted developers struggling to secure suitable funding from lenders.As property cash flow fundamentals detoriate especially in parts of the office sector, distressed debt volumes have increased. So have delinquency rates, including delinquencies for CMBS. During the Great Recession financial turmoil originating in the CMBS markets has triggered widespread banking failures.This paper looks at the current state of US markets for commercial real estate finance. It covers three fundamental questions:How do US lenders react to current changes in commercial real estate market fundamentals?How do US supervisory authorities react to current market distress? What are the medium-term expectations for the changes in the supply side of markets for commercial real estate finance?

Keywords: Banks; Cmbs; Real Estate Finance; US Real Estate Markets (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2024-01-01
New Economics Papers: this item is included in nep-ure
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