Who’ll Get Hit by Fallout from the $11-Trillion Commercial Property Bubble in the US?

Jon Banking, Blogosphere, Market Commentary, Real Estate

It’s the banks they’re worried about.
Warnings about the loans, bonds, and commercial-mortgage-backed securities (CMBS) tied to the vast $11-trillion commercial property sector in the US have been hailing down for months. Moody’s Investor Services just warned about the rising delinquency rate of some $360 billion in CMBS it rates. Delinquencies of 60 days jumped from 4.6% last year to 5.6% in September.
Fitch Ratings has been fretting about valuations in the sector, and CMBS, for months. ‘Valuation and lending trends are not sustainable in the medium term,’ it said most recently in its November report. It pinpointed debt backed by apartment buildings as a particular trouble spot. But now it’s also fretting about construction loans, which ‘experienced the highest loss severity in the last crisis, and we expect a similar trend in the next downturn,’ it said.
It’s worried about the banks, whose commercial real estate (CRE) lending has reached ‘record levels’:

This post was published at Wolf Street on November 16, 2016.