Will the refinancing of commercial real estate put banks back under pressure?

We do not yet know whether the banking crisis is already over or whether it only began with SVB’s troubles, but the next alarming voices are already being heard: Loans for commercial real estate are burdening small and mid-sized banks in the US with several billion dollars.

Reasons for the many vacant commercial buildings include working from home and online retail. Both flourished during the COVID period. At nearly $3 trillion, these property loans are the biggest powder keg when it comes to a potential new banking crisis. Their refinancing is due soon, meaning that, according to an analysis by the renowned Kobeissi Letter, a weekly capital markets commentary, more than $2.5 trillion in commercial real estate debt will mature over the next five years—more than ever in any five-year period.

This is paving the way for a new crisis of confidence. The central bank recently raised interest rates, contributing to higher defaults on real estate and business loans. US banks had issued $10 trillion of these. To offset losses from write-downs, banks will almost certainly resort again to measures such as selling securities and using government liquidity programs.

The well-known consequence is declining investor confidence. As already experienced, bank runs could follow, leading to further high loan defaults. In the end, we could potentially find ourselves in a situation like 2008 again. Investors should therefore keep a close eye on the situation and consider safe investment options.

One proven way to do this is to physically invest in commodities that are not linked to the banking cycle. Technology metals and rare earths also promise attractive returns, including tax-free storage and tax-free sale.