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> How could recent bank failures impact CRE lending? > 10 cities have the highest percentage of empty office buildings > Sun Belt traffic jams are threatening city growth
How could recent bank failures impact CRE lending?
Analysts say the late-March failures of major lenders Silicon Valley Bank and Signature Bank — and lifesaving infusions of capital into two others — are driving more conservative lending in commercial real estate capital markets. But it’s unclear how long that effect may last.
“It seems almost inevitable that CRE credit spreads will increase and lending liquidity will decrease over the short run,” banking exec JP Verma told Wealthmanagement.com. “However, there are still several questions … such as whether lending liquidity is drying up, how lending spreads are reacting and how long this fallout will last.”
More points from the article about what CRE investors might expect next:
Since the FDIC is protecting depositors, the market effect should be contained.
CRE credit spreads are growing across commercial mortgage-backed securities, debt funds and banks.
As investors turn to less-risky Treasury bonds, their yields will fall, prices will rise and bond sales will end in lower losses. That may suppress mortgage rates.
To protect themselves, banks may closely assess portfolio risk and area supply and demand, and are unlikely to meet last year’s CRE lending records. Loans may be reserved for established customers.
Regional and community banks may lend for CRE more actively than larger money center banks.
Banks may limit funding office buildings due to work-from-home trends.
Investors seeking to extend mortgages may face higher interest rates and delinquencies may rise — especially for office building loans.
10 Cities have the highest percentage of empty office buildings
It’s no secret landlords are struggling to refill office space following the pandemic, but some cities are hurting more than others.
A recent NAR report says the U.S. cities with the greatest portion of office vacancies are San Rafael, California (19.3%); Houston (18.8%); Dallas-Fort Worth (17.2%); San Francisco (16.4%); Washington, D.C. (15.5%); Chicago (15.1%); Phoenix (15%); Denver (14.6%); Los Angeles (14.4%) and Atlanta (14.1%).
A Yahoo article attributes the problem to excess supply from new construction, pullbacks in key industries, tight labor markets, expensive rents and remote work arrangements; as such, few expect average occupancies to return to pre-pandemic levels anytime soon.
Regardless, many feel municipalities aren’t doing enough to incentivize conversions from office to apartment space. For example, D.C. aims to convert some 7 million square feet of office space to apartments and condos by 2028 to draw 15,000 new residents.
“The longer cities wait to get conversions underway, the more tax values drop and crime goes up, and the more people see no value in living in the heart of the city — or even visiting,” reads one Washington Post editorial.
Sun Belt traffic jams are threatening city growth
As residents and companies flock to the Sun Belt, traffic jams are wasting people’s time, discouraging commuters, hindering transport of goods and services and taxing infrastructure. Example: 2022 Miami commuters lost an average 105 hours in traffic.
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