Commercial Real Estate -- almost 10% of GDP

Usually I’m not that interested in commercial real estate (CRE) but my eyebrows rose when this article said it’s almost 10% of GDP. Wowza, that’s Macro!

Bank Crisis Could Cast Pall Over Commercial Real Estate Market

The market hadn’t fully rebounded from the pandemic. Some worry that another slowdown could add to fears of a recession.
Matthew Goldstein

By Matthew Goldstein, The New York Times, March 22, 2023

The fallout from the recent banking crisis spurred by the collapse of two banks — and concerns about the health of a third — is bubbling up in the market for commercial real estate lending, as borrowers fear that banks will pull back. That could slow down construction activity and increase the likelihood of a recession, analysts and real estate experts said…

Commercial real estate contributed $2.3 trillion to the nation’s economy last year…

…the annual rate of commercial real estate loan origination by dollar volume grew 18 percent in the fourth quarter of 2022… On an annual basis, the rate of commercial real estate loan growth this year had already been cut in half compared with last year…

The universe of commercial real estate includes loans for new construction, mortgages and loans specifically for managing multifamily apartment complexes. The so-called securitized products containing loans that banks make are called commercial mortgage-backed securities — a more than $72 billion market last year. But it’s a different story in 2023, with issuance of those bonds down 78 percent from a year ago.… [end quote]

Oh, I just looooove hearing about securitized products containing loans. (Has a familiar ring from 2008, doesn’t it?)

With interest rates rising, regional banks which provide many CRE loans around the country under pressure and issuance collapsing…

What could possibly go wrong?


I have a friend looking to sell his rental property management company. He does not really have to do so. He has already packaged off one third to be managed elsewhere by another company. He has laid off one of his bookkeepers. Most of the property underneath his management is paid for in full. He still after a life time wants to sell his business. We live in interesting times.

This is a tough year to trade out of assets. Not a good idea for it.

We might not have much of this remaining at the short end of the interest rate curve. At the longer end, perhaps 5 years and longer, which is probably much more relevant to the pricing of commercial real estate loans, we may have seen the highs for yields come and go in this cycle.

The evidence on so many fronts is pointing more and more to slower economic activity, which will not be inflationary and will not put upward pressure on Treasury yields.

In the Fed’s words,
“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”


Recently I read a story about the high vacancy rate in NYC. The gist of the story was that the owners didn’t care! They bought the real estate to launder money. I have no idea whether it is true or not.

The Captain


In London anecdotally, this is very true. Many blocks of the highest end apartment/condo buildings in the Kensington Gardens area have been bought up by Russians and Saudis burying money. Block after block of beautiful, empty buildings.


What about commercial real estate there?



Multi-family is considered to be commercial.


That’s why, when discussing CRE, it is important to separate the categories. While office space CRE will likely suffer as they need to refinance, other types, like medical, multi-family housing, manufacturing, etc may not suffer, or may not suffer nearly as much.

And like everything regarding real estate, location matters. It seems that in the northern areas office occupancy is a lot lower than in southern areas (sunbelt?).