As we prepare for the next hike, Commercial Real Estate keeps screaming for help. To low occupancy rates, we have to add the issue of the maturity wall. As you can see in the chart below, over the next 5 years, $2.5Tn of debt will mature and will need to be renewed, and “higher for longer” on rates, means some of these buildings will go bankrupt, or will renew their debt with more unfavorable terms. The bulk of the debt is supported by banks, which are now depending on the Fed’s BTFP, and are tightening lending standars, and some of these buildings have already fall in foreclosure. On top of that, CRE debt is priced over Treasury yields which are deemed to rise adjusting to inflation and the huge supply of paper available.
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Chart source: Morgan Stanley
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