Commercial Real Estate Risks are Emerging

The U.S. banking industry, especially the small and medium-sized banks that are experiencing a liquidity crisis, is facing the "next nuclear bomb"-commercial real estate loans. According to Morgan Stanley research, $2.5 trillion in commercial real estate debt will mature over the next five years. Nearly a trillion dollars of debt will come due this year and next.

Since the second half of last year, the largest banks in the United States have successively reduced their exposure to commercial real estate loans, and small and medium-sized banks have emerged as the main force of new commercial real estate loans. The recent turmoil in banks in these regions has intensified the pressure on commercial real estate debt.

That is, as the U.S. banking crisis spreads, smaller banks may further withdraw commercial real estate loans, and private debt funds may step in to fill the gap, but they will require higher financing costs and are unlikely to achieve the required scale , resulting in a credit crunch.

Combined with the new business and remote working model in the post-epidemic era, this in turn will increase the risk of commercial real estate defaults and even threaten the solvency of the entire small banking sector, which may be a devastating blow to small banks. The industry is too exposed to risk.

In turn, this will continue to exacerbate market panic.