Specialists consider that for this 2023, one of the biggest falls in the commercial real estate market is coming, which is expected to be similar to or greater than the financial crisis of 2008, therefore, property valuations may fall as much as 40% this year.
These forecasts are based on the current fragility of the US economy. According to Fitch Ratings, it indicated in its report that between April and December of this year, 35% of the commercial mortgages of pooled securities mature, this represents $5.8 billion dollars that can no longer be refinanced.
For Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, high interest rates are one of the first obstacles for investors to refinance trillions of dollars in looming debt. It is estimated that there are about $1.5 trillion dollars in commercial mortgage debt, which will mature at the end of 2025.
Shalett mentioned that “MS & Co. analysts forecast a CRE price drop from peak to trough of up to 40%, worse than in the Great Financial Crisis. More than 50% of the $2.9 trillion in commercial mortgages must be renegotiated in the next 24 monthswhen it is likely that the new interest rates will increase between 350 and 450 basis points,” he said.
Other drawbacks mentioned by specialists are the high costs of loans, the new modality of remote work and tighter credit conditions, has led to the largest increase in default in the market.
The analyst added that “the commercial real estate sector, which faces headwinds from shift to hybrid/remote workyou have to refinance more than half of your mortgage debt in the next two years,” Shalett said.
For her part, Treasury Department Secretary Janet Yellen warned that due to the country’s recent banking and economic crises “there will be problems with commercial real estate,” she said while assuring that banks will be able to handle the coming downsides as they will be stronger.
Source: La Opinion