US Banks Face a Massive Commercial Real Estate Crisis Looming on the Horizon
Financial institutions could soon face a harsh reality as a commercial real estate crisis has threatened the profits of America’s largest banks. A number of reports indicate that banks with a large amount of commercial real estate in their portfolios could potentially have a significant impact over the next several months.
Just recently, PWC’s real estate practice published a report entitled “The 2021 Emerging Trends,” which shows that the ranks of cities have changed significantly since the outbreak of the coronavirus. For example, the city of Seattle was one of the top ten cities for real estate investing for a number of years, but after Covid-19, it dropped to 34th place in ratings with other American cities.
One of the biggest problems facing big cities like Seattle, Boston, New York, LA, Atlanta, and many more cities is the increasing commercial real estate (CRE) losses looming on the horizon.
For example, on November 11, 2020, columnist David J. Lynch published an article on how the current CRE market should scare financial institutions like banks. The editorial explains how Manhattan-based Signature Bank’s third-quarter earnings showed that “60 percent of its portfolio is tied up in commercial real estate.”
Lynch goes on to explain that lending to businesses like hotels, landlords and local businesses used to be something banks could rely on, but in cities like New York these places are now a “ghost town”.
The Signature Bank suffers greatly from the consequences, as Lynch further notes:
The bank’s bad loan write-offs, while still modest, continue to rise. Despite years of consistent profits, investors have penalized the stock, which has lost 27 percent of its value this year after a recent rebound.
Basically, commercial property, or CRE, is a type of property that is used solely for business purposes. An extremely large portion of the global CRE is rented to those making an income, but due to Covid-19 and the government’s response to the virus, some people who lease CRE are unable to earn an income.
The CRE crisis looming in the United States is happening in almost every state. On November 16, 2020, Jdsupra released a report on Delaware and the dire impact of the Covid-19 response on commercial property renters and landlords.
“The Delaware real estate industry has seen dramatic changes in the past eight months as a result of the Covid-19 pandemic. Without a regular source of income, many commercial tenants are unable to meet their monthly rental obligations,” writes John Newcomer, Jr., Jdsupra employee. “With reduced monthly rental income, some landlords experience a liquidity squeeze that affects their ability to make mortgage payments to their banks.”
Meanwhile, the federal eviction ban enacted by the CDC will be lifted later this year, and skeptics believe it could spark a crime episode. Local authorities in badly affected CRE markets like New York and California are trying to contain the impact through additional regulations.
For example, California will continue to cap annual property tax increases for CRE markets. Additionally, analysts say no US president can affect CRE’s returns, no matter who is in office in January. According to a recent report by Cushman & Wakefield, property downturns are driven by deep recessions, regardless of which political party is in charge of the US.
“Rather than elections,” the Cushman & Wakefield report emphasized, “the real estate cycle, the economy, interest rates, COVID-19, geopolitical events, and long-term growth drivers (such as demographics and technological change) are the focus in determining lease fundamentals Real estate values. “
In addition to CRE and residential real estate, there have been different price changes for the fixed assets gold and bitcoin in the last few days. For example, spot gold prices fell 0.40% following the Moderna vaccine announcement on Monday, and an ounce of fine gold trades for $ 1,888 per unit. Gold’s value also fluctuated when Pfizer also announced a vaccine against Covid-19, but the crypto-asset markets did just the opposite.
For example, after the Moderna vaccine was announced, Bitcoin (BTC) peaked at $ 16,850 on the Bitstamp exchange, rising 5.6%. Ethereum prices rose 3.39% on Monday, hitting a high of $ 464 during Monday afternoon’s trading sessions. The overall crypto market economy is still nearing half a trillion dollars at $ 464 billion, up 2.6% on Monday.
What do you think of the impending commercial real estate crisis in the US? Let us know what you think on this matter in the comments section below.
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America’s Largest Banks, Banks, Bitcoin, Bitcoin (BTC), Bitcoin Prices, Corporations, Commercial Real Estate, Coronavirus, COVID-19, CRE, CRE Crisis, CRE Market, Cryptoeconomics, David J. Lynch, Financial Institutions, Gold, Gold Markets , Gold Price, Losses, Mega Banks, Real Estate, Real Estate, Rentals, Signature Bank, US Real Estate, USA, Vaccine
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