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| Commercial real estate distress, specifically office, is on the rise as multiple firms announce that they’ve set aside greater amounts of cash for real estate loss provisions last quarter than expected. Deutsche Bank’s second quarter earnings report showed that the dent to its profitability from commercial real estate loans has hit all time highs, Blackstone Mortgage Trust Inc. slashed its dividend, and New York Community Bancorp loss provisions came in way above expectations. |
| It’s likely that high-cost commercial office loans will continue to affect earnings in the coming weeks, as more than $94 billion of US commercial real estate is currently distressed. Despite having the knowledge that interest rate cuts are on the horizon, it’s clear that lenders are not ready to extend loans or refinance yet. With more than $1 trillion in loans coming due over the next two years, companies are preparing for further declines in appraised valuations and potential defaults. Just as we’ve seen the delayed effects of a higher interest rate environment, once rates start to drop it will certainly take time before there’s any relief in the commercial real estate market. |
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