Commercial Property Losses Proliferate as Interest Rate Hikes Take Effect

Three banks on three different continents have recently reported significant losses and challenges stemming from their exposure to commercial property. New York Community Bancorp (NYCB) revealed that it has incurred major provisions for losses on commercial property loans, causing its shares to plummet. Tokyo-based Aozora Bank also experienced a sharp decline in shares after it announced the transformation of its expected profit into a loss due to problematic overseas real estate loans. Additionally, Switzerland’s Julius Baer disclosed a $700 million loss resulting from the failure of the Austrian property group Signa.

Although these banks have distinct characteristics, they all share a commonality: the transition from nearly zero interest rates for over a decade to the rate hikes initiated in 2022 has significantly impacted their financial performance, particularly for middle-sized banks. This trend highlights the growing issues within the commercial property sector.

In the case of NYCB, which experienced notable stock market volatility, the bank’s stock price soared before plummeting due to losses on property loans. This situation illustrates the fragilities of the stock market and the challenges faced by medium-sized banks in the commercial property sector. Many banks aim to reduce their exposure to this $5.8 trillion market, as a record number of loans are maturing and necessitate refinancing in the coming years. However, these banks require high-yield loans to finance attractive deposit rates for savers, making it a difficult balancing act.

The deposit issue arose during last year’s crisis when depositors shifted their money to larger banks, concerned that the problems faced by failed banks like Silicon Valley Bank, Republic Bank, and Signature Bank were not isolated incidents. For instance, data from NYCB revealed that the bank paid an average interest rate of 3.62 percent on its interest-bearing deposits in the fourth quarter, compared to 1.93 percent the previous year. In contrast, banking giant JPMorgan paid a rate of 2.78 percent.

The deteriorating condition of the US commercial real estate market further exacerbates the problems faced by banks. Aozora Bank’s sharp turnaround exemplifies this, as potential losses on a relatively small portion of its loans transformed expected profits into probable losses. The bank reported a high volume of non-performing loans, particularly in Chicago, where property sales remain low. These challenges in the commercial real estate sector reflect a more profound crisis and underline the need for significant state support to sustain the financial system whenever it encounters difficulties.

Experts predict that the commercial real estate pain, particularly in the office sector, is just beginning. Anne Walsh, the chief investment officer of Guggenheim Partners Investment Management, likens it to a “rolling recession” for banks, potentially lasting for a significant period of time.

The International Monetary Fund has also warned about the possibility of a substantial decline in commercial property prices, which could escalate into a larger crisis. With $2.2 trillion worth of US property loans set to mature by 2027, the industry already faces challenges with banks offering short extensions on overdue loans. The impact of interest rate hikes on commercial property loans and developments could potentially lead to further financial turbulence in the future.






専門家は、商業不動産市場、特にオフィスセクターにおける痛みはこれからが本格的な始まりであると予想しています。Guggenheim Partners Investment Managementのチーフ投資官であるアン・ウォルシュ氏は、それを「ローリングリセッション」と例え、長期にわたる可能性があると述べています。