Problems in commercial RE lending could hit banks

Office Vacancies Send Real-Estate Investors to the Exits

Some fear rout in commercial mortgage bonds could signal trouble for banks

By Sam Goldfarb, The Wall Street Journal, Updated April 6, 2023

Prices of bonds backed by commercial mortgages have recently dropped to levels not seen since the early days of the pandemic, pointing to a growing economic threat stemming from office vacancies and rising interest rates…

Investors and analysts care about CMBS prices in large part because of what they signal about a much larger universe of commercial real-estate loans that aren’t sliced into securities. …

Banks are by far the largest lenders in the sector, holding 46% of all commercial real estate debt. Banks, though, typically don’t have to cut the value of the mortgages they hold on their books until borrowers have trouble making their debt payments. The CMBS market, therefore, can signal what the true value of those assets might be, a suddenly burning question for investors…It will likely take time for investors to realize losses. … [end quote]

The problem is that banks can hide the problems with their commercial real estate lending. The stock prices won’t necessarily reflect the depressed value of the assets or the later defaults.



Just want to share a sad tale that is analogous. I am comparing financial failings in banking institutions to Enron.

A friend years ago did a lot of research in oil. She was a pretty savvy stockbroker.

Her view of the Enron failure was interesting. Enron was loaded with futures and options. If Enron was a train and the quarterly reports were rail stations where everything had to show up proper that was always the case, the reporting was good.

One quarter the train engine Enron left the station on its normal business. Dynergy across town in Houston began to say things were going wrong for Enron. If Enron had made it into station with the futures and options worked out then the reporting again would have been very good.

Enron never made it that far. Instead with whispers in Houston she went off the tracks.

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I am on the Board of our local Chamber of Commerce and I attended a “Business After Hours” get together with a number of Chamber members. I happened to stroll over to a bunch of bankers (all from different local sized banks) who were discussing the credit worthiness of their C&I real estate portfolio. Most were showing some signs of concern that some of those loans may go south in the near future. One Credit Executive told us that she is “somewhat concerned” over the quality of the loans that are being held on the banks books.

I guess we shall see soon enough.


Problems have been building up for months in this sector:

The alternative asset manager continues to see investors asking to pull money from its enormous REIT.


I have an old friend here in CT who is on the board of a local corporation that has bought up three small banks in this area. He is an insurance broker with his own agency. His thoughts are similar to your friends in MA.