The Perfect Storm Hits The Real Estate Markets Globally

Looming Crisis
How Commercial Real Estate could be the next domino to fall
The commercial real estate market is in the midst of a perfect storm that could potentially create a financial crisis of epic proportions. Interest rates are soaring, while office vacancies have hit a record high. With $1.5+ trillion in commercial real estate debt set to mature by 2025, refinancing these loans in the face of these challenges could prove to be an insurmountable task.
The commercial real estate industry is estimated to have a market size of ~$20T. To put that in perspective, the value of U.S. commercial real estate is more than half of the market value of all U.S. publicly traded companies (stocks).
Traditionally, when commercial real estate debt matures, refinancing is accompanied by a reduction in interest rates. But with interest rates on mortgages more than doubling in just two years, the prospect of refinancing these loans has become increasingly daunting.
Compounding the problem is the fact that smaller banks have taken on a higher percentage of commercial real estate loans. While this trend has been evident for some time, new data reveals that small banks now hold 27% of commercial real estate debt, up from 17% in 2017. In fact, smaller banks rely on these loans as much of their business is derived from commercial real estate.

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