The Debt Crisis Looming in Commercial Real Estate

And for today’s Bloomberg big take we’re breaking down how high are interest rates are influencing property values the commercial real estate market and it is obviously a story that so many are interested right now Natalie Wong and John gittleson co-authoring the big take and joining us with some more

Perspective thanks both for being here and you heard those comments from chair Powell in your piece uh John I’ll start with you you dive into the numbers on how much commercial debt is coming due how it’s going to hit what can you tell us about the numbers right now

Big numbers uh depending on your Source The Mortgage Bankers Association says over the next two years in the U.S alone 1.4 trillion dollars of debt coming due much that won’t be a problem but there’s a lot of it that’s office debt and that will be harder to refinance because a

The cost of borrowing is up and B the value of those buildings are down and so people are going to have to pay a lot of money or decide not worth it to refinance these places so are we starting to see transactions um normalize or or any hint Natalie that

That’s going to happen because right now we’re stuck in a kind of transactional stalemate right sellers don’t want to let go at much lower prices and buyers are having to finance purchases at much higher interest rates right I mean we’ve been stuck for quite some time now over

The past few years especially especially in the office sector sellers and buyers just weren’t agree agreeing on what price to sell at but now we’re at a Tipping Point which John mentioned there’s 1.4 trillion dollars of commercial real estate debt coming due in the next 18 months and a lot of banks

And lenders and owners have to decide exactly what to do and where values stand but we’re still at a point now where transactions haven’t necessarily been at full force because some owners are going to have to take a big loss some lenders are going to have to write

Down a big loss and it’s unclear exactly how much further down it’ll come yet so one of the interesting things to me John is that some incredibly asset-rich institutions with very wealthy investors are starting to simply walk away from you know 100 million or billion dollar properties uh Blackstone Pimco

Brookfield are they really going to just default and leave or are they trying to negotiate with lenders who probably have little other choice well I think there’s a combination of two things you’re right in some cases it may be a negotiating tactic but they’re also just looking at the raw numbers

These people are you know they have they can’t wait forever to get their money back and there was an article I wrote yesterday about how one uh Analyst at Capital economics says it will take until 2040 at least for office values to recover so if I have property now I’m

Not going to wait for another you know 17 years to get my money back I don’t have that kind of time so better now to cut my losses then keep pouring good money after bad and Natalie final word over to you as we take a look at availability rates and

San Francisco right up there I mean you guys look at markets around the country in your piece Matt yesterday was talking about you know big Tech excitement in San Francisco maybe the industry feeling excited right now but the realities are in the property Market it is a complicated one it’s extremely

Complicated San Francisco has been the hardest hit in their office Market because really Tech led the remote work pullback a lot of companies weren’t coming back to the office right away and then you have a Confluence of factors with the downtown people not feeling that safe longer commute times to head

There and so you have a bunch of skyscrapers that are largely empty vacancy rates are at record Heights and leading the way across the country and then you have owners major institutional owners that are starting to default on loans for their skyscrapers in downtown San Francisco

John Gittelsohn and Natalie Wong discuss how higher interest rates are impacting the property market and commercial real estate …
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