Banking’s Next Threat? It Might Be Commercial Real Estate
If the saga at Silicon Valley Bank hastens the arrival of the next recession, expect to see many more properties go into default sooner rather than later.
Commercial property loans are coming under stress.
Photographer: David Paul Morris/Bloomberg
If market participants are wringing their hands over the potential fallout from the collapse of Silicon Valley Bank, just wait until they look at the banking industry’s exposure to the rapidly weakening commercial real estate sector.
It seems as if every few days brings news of some big property going into default. Within the past few weeks, an office landlord controlled by Pacific Investment Management Co. defaulted on about $1.7 billion of mortgage notes on seven buildings in places such as San Francisco, Boston and New York. Before that, a Brookfield Corp. business defaulted on loans tied to two Los Angeles office towers. A $1.2 billion mortgage on a San Francisco complex co-owned by former President Donald Trump and Vornado Realty Trust has showed up on a watchlist of loans that may be in jeopardy.