Commercial real estate – what happens if the bubble bursts?
A full-blown crisis is emerging in the US commercial real estate market. It is intensifying and spreading to the banking sector. Some are already drawing parallels with the 2008/09 banking crisis. German banks are also affected.
Heavy losses at banks due to looming loan defaults
At the end of January, New York Community Bancorp (NYCB) posted a loss of $252 million. In addition, its share price plunged by 45%. It is one of the small and mid-sized banks that provide 70% of the loans for commercial real estate. These institutions had to make provisions and therefore set aside funds to offset potential loan defaults. The resulting losses earned NYCB a poor rating from the rating agency Moody’s: a few weeks ago, it assigned the bank’s creditworthiness a “junk” rating, meaning there is a high risk of default.
Massive losses also at Germany’s Pfandbriefbank
The shockwaves are now reaching Germany as well. Pfandbriefbank (pbb), which is active in the US commercial real estate market, recently reported massive losses. This is because it, too, set aside €210–215 million last year for potential loan defaults. Although the bank insisted that it remains profitable despite the biggest real estate crisis since the financial crisis, it slipped into the red in Q4. Following the announcement, the share fell by up to 6% to an all-time low of €4.65.