Small and regional banks across the United States might have trouble staying solvent as news of their exposure to office space slowly starts to emerge. Between now and 2027, a large portion of banks commercial property loans are maturing, further stacking pressure on fragile lenders already teetering under bond losses. Among those most exposed are San Francisco and New York, with more than 30% office space available. Brookfield Corp. defaulted on two office towers in Los Angeles in February instead of refinancing them. The increasingly dominant view point is that office space will not recover from new pandemic trends (ex: work from home) and that defaulting is more desirable than refinancing.
In the UK, properties are graded on energy performance from A to G. By 2030, it will be illegal to rent commercial buildings below B, currently about 75% of the total. This development forces landlords to spend even more money on costly upgrades whilst dealing with lower occupancy rates.
UPDATE (SEPTEMBER 2023):
Newmark, a property-services firm, says there is a maturity wall of $626 billion in troubled commercial-property, where senior debt makes up 80% of the value, that is due between 2023 and 2025.
According to Moody’s, a ratings agency, regional or local banks with under $10 billion in assets have exposure to commercial real estate worth 279% of their equity cushions compared with 51% for those with over $250 billion.
Sources: Bloomberg, Economist
https://financialpost.com/fp-finance/brookfield-defaults-2-office-towers-los-angeles
Devlin Demontigny 