Commercial real estate risks and outlook for 2024

A National Bureau of Economic Research paper warned commercial real estate loan defaults could reach Great Depression-era levels if rates stay high. USC Finance Professor Erica Jiang discussed the risks on Yahoo Finance Live.
Jiang noted falling property cash flows, declining values, and refinancing challenges raising distress, especially for offices, multifamily, and hotels. She says “rising interest rates make it very difficult” to refinance, causing rollover issues.
With 15% of commercial loans already underwater presently, Jiang notes default outlooks now “don’t look very good.” She highlighted offices as particularly exposed, with 45% of office loans underwater, meaning the property value is below the loan amount. This makes refinancing unlikely as it “has high default risks.”
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