'US Commercial Real Estate' Identified as a Trigger in US Banking Sector... Signs of Recession Growing Larger

Increased Vacancy Rates Due to COVID-19
Rising Interest Rates... Anxiety Spreads to Banking Sector

The commercial real estate market is drawing attention as the next potential source of instability in the U.S. banking sector.

According to foreign media including The Wall Street Journal (WSJ) on the 6th, a 22-story building in San Francisco, located in the western United States, was valued at approximately $300 million (about 400 billion KRW) in 2019.

It is currently on the market with bidding closing soon, and is expected to sell for about $60 million. This represents an 80% drop in value in just four years.

Commercial real estate services company CBRE Group analyzed that the vacancy rate for offices in San Francisco is approaching 30%, more than seven times the rate before the COVID-19 pandemic.

Similar phenomena are appearing in other major cities such as Los Angeles and Manhattan, New York. Statistics company CoStar Group reported that the vacancy rate for offices across the U.S. in the first quarter was 12.9%, the highest since records began in 2000.

Due to remote work after COVID-19 and ongoing large-scale restructuring amid economic recession, the vacancy rate is expected to rise until next year.

With recent interest rate hikes, real estate companies are feeling a heightened sense of crisis, and this anxiety is directly transferring to the banking sector. This is because real estate companies primarily borrowed money from small and medium-sized banks.

According to U.S. real estate information firm Trepp, the commercial real estate loan volume at the end of last year was $5.6 trillion. Of this, banks accounted for 50.6%, and small and medium-sized banks made up 67.3% of that portion.

The problem is that the volume of Commercial Mortgage-Backed Securities (CMBS) maturing from this year onward is expanding. The total loan maturities due by next year far exceed $1 trillion.

In this context, cases are increasing where real estate companies with reduced rental income fail to repay principal and interest on loans secured by buildings to banks on time. Some commercial real estate owned by Brookfield, Waterbridge Capital, Blackstone, and others have already declared defaults.

This is why Charlie Munger, Vice Chairman of Berkshire Hathaway, expressed concerns that the downturn in commercial real estate, including office buildings, could become another trigger for instability in the U.S. banking sector.

Munger, Warren Buffett’s close partner and business colleague at Berkshire Hathaway, recently stated that there are many problematic commercial properties including office buildings and shopping centers, and that banks should tighten real estate lending more than they did six months ago.

This content was produced with the assistance of AI translation services.