WASHINGTON–The banking industry is facing a “$160 billion” conundrum when it comes to commercial real estate, according to a new report.
“Since the collapse of Silicon Valley Bank last spring, Wall Street has been on high alert for the next big systemic risk. Atop its list of worries is the banking sector’s exposure to the souring commercial real estate market,” reported the New York Times. “A new study puts a number on what’s at stake. Banks face up to $160 billion in losses from an anticipated wave of defaults on their commercial real estate loans, researchers from Columbia, Stanford, U.S.C., and Northwestern write in a working paper published by the National Bureau of Economic Research.”
In addition, the Times cited separate research that estimates CRE values are set to drop by more than $500 billion in 2024. And Morgan Stanley calculated earlier this year that lenders would need to negotiate more than $1.5 trillion of their CRE portfolios by the end of 2025 to avert defaults.
‘Potential Tsunami’
According to the Times, a potential tsunami of losses could put banks at risk, with the Times citing a NBER paper that stated, “Our analysis, reflecting market conditions up to Q3 2023, reveal that CRE risk can induce anywhere from dozens to over 300 mainly smaller regional banks joining the ranks of banks at risk of solvency runs.”
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