NEWS | August 9, 2023

Could Refinancing Commercial Real Estate Once Again Put Banks in Jeopardy?

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We still don’t know whether the banking crisis is already behind us or if it might have started with the stumble of SVB, and yet the next alarming voices are already emerging: Loans for commercial real estate are burdening smaller and medium-sized banks in the US with billions of dollars.

Reasons for the many vacant commercial buildings include remote work and online shopping. Both flourished during the time of COVID-19. With nearly three trillion dollars in loans tied to these properties, they pose the largest powder keg in relation to a potential new banking crisis. Their refinancing is due soon, and according to an analysis by the reputable Kobeissi Brief, a weekly capital market commentary, over the next five years, more than 2.5 trillion US dollars in commercial real estate debt will come due – the highest amount ever in a five-year period.

Thus, a new crisis of confidence is looming. The central bank recently increased interest rates, contributing to higher defaults in real estate and business loans. US banks had extended $10 trillion of these loans. To offset losses from write-offs, banks will likely resort to measures like securities sales and government liquidity programs.

The well-known consequence is dwindling investor trust. As previously experienced, bank runs could follow, leading to further high loan defaults. In the end, we might find ourselves in a situation similar to 2008. Investors should definitely keep an eye on the situation and consider secure investments.

A proven option is the physical investment in commodities that are not tied to the banking cycle. Technology metals and rare earth elements also promise attractive returns, including tax-free storage and tax-free selling.