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Commercial real estate foreclosures jumped 117% in March as trouble looms

of commercial real estate Markets are beginning to distort under the weight of rising interest rates and remote work.

There were 625 commercial real estate foreclosures in March, an increase of 6% from February and 117% from the same period last year, according to a new report released by real estate data provider ATTOM.

This number is calculated based on commercial properties entered into the ATTOM data warehouse during the month that had at least one foreclosure filing (including notices of default, scheduled auctions, and bank foreclosures).

California had the highest number of commercial foreclosures in March, with 187. Although it was down 8% month-over-month, it was up a whopping 405% year-over-year.

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“The number of commercial foreclosures in California began to noticeably increase in November 2023, exceeding 100 cases, and has continued to increase since then,” the report states.

A sign posted on the exterior of Westfield San Francisco Center on April 13, 2022 in San Francisco, California. (Photo by Justin Sullivan/Getty Images/Getty Images)

New York, Florida, Texas and New Jersey also saw notable increases in commercial foreclosures last month.

The number of foreclosures has been steadily increasing since hitting an all-time low of just 141 in May 2020. then, us economy is still in the midst of the COVID-19 pandemic, and many lenders offered commercial loan forbearance to borrowers to help them stay afloat.

However, these agreements have largely expired, and the commercial real estate market now faces a number of challenges, including rising interest rates and declining demand for office space as more companies allow employees to work from home. are doing.

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The US Federal Reserve (Fed) has raised interest rates to the highest level since 2001 in response to soaring inflation. Interest rates are expected to remain high for some time, as policymakers have indicated they are not prepared to start cutting rates until they are confident that inflation is back to 2%.

new york city commercial real estate

Sunday, February 11, 2024, at the HSBC Tower at 452 Fifth Avenue Center in New York. (Photographer: Michael Nagle/Bloomberg via Getty Images / Getty Images)

Approximately $1.5 trillion in commercial mortgage debt is due by the end of 2025, but rising borrowing costs, tightening credit conditions and falling real estate values ​​due to remote work are increasing the risk of defaults. The risks are rising.

About $929 billion worth of commercial real estate loans are scheduled to mature this year, according to the Mortgage Bankers Association. Borrowers may have no choice but to refinance at a significantly higher interest rate or sell the property at a significant loss.

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Complicating matters is the fact that small and regional banks are the largest source of credit in the $20 trillion commercial real estate market, holding about 80% of the sector’s outstanding debt. . Regional banks were at the epicenter of the turmoil in the financial industry last year following the failure of Silicon Valley Bank, and there are concerns that the turmoil could disrupt the financial industry. Loan standards become significantly stricter.

Jerome Powell Fed Chairman

Federal Reserve Chairman Jerome Powell speaks during a press conference after the Federal Open Market Committee meeting in Washington, DC, March 22, 2023. (Photographer: Al Drago/Bloomberg via Getty Images / Getty Images)

When a credit crunch occurs, banks sharply raise their lending standards, making it difficult for businesses and households to obtain loans. Borrowers may be required to agree to more stringent terms, such as: high interest rate Because banks are trying to reduce their own financial risks.

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Federal Reserve Chairman Jerome Powell said in March that commercial real estate woes would likely lead to some bank failures, but did not pose a greater threat to the financial system.

“We’ve identified banks that have a high concentration of commercial real estate, especially offices and retail, and other banks that have been significantly impacted,” Powell said in testimony on Capitol Hill. “This is an issue that we will be grappling with for many more years. Bank failures will occur, but not the big banks.”

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