Wall Street warns the banking turmoil is coming for the commercial real estate sector
Good morning, readers. I'm Phil Rosen, reporting from New York City.
The bank turmoil we saw in March feels like some time ago, but top strategists are warning that more consequences are still ahead.
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1. Regional banks' recent troubles are just the beginning — at least, that's what a chorus of Wall Street folks have been saying this week.
JPMorgan Asset Management's Jonathan Liang said Wednesday on Bloomberg that smaller banks now face an increased risk of credit losses because of their heightened exposure to the commercial real estate debt.
Nearly $450 billion in commercial mortgages are due to mature this year, with final payments due in the coming months for many property owners, according to Trepp data cited by JPMorgan.
"We think the story in banking is not over yet," Liang said.
And Goldman Sachs' global head of real estate client solutions, Jeffery Fine, recently said the commercial real estate market is in the middle of a "perfect storm" of higher rates, tight credit, and fast-maturing debt.
The market faces a "big rightsizing" that must be confronted, Fine said on Goldmans' podcast, and he anticipates a drop in valuations in older properties and office buildings.
Remember, the Fed's nine consecutive interest rate hikes have made borrowing more costly, and commercial property owners will likely be trying to refinance their loans at higher rates than when they originally took them out.
On top of that, many experts say that a credit crunch has begun, and loans are going to be generally harder to come by.
The Goldman strategist said securing commercial real estate loans now is "almost impossible" since financing has just about shut down.
"Over time there's going to have to be a very organized public and private partnership to figure out a careful unwind of this current dynamic," he added. "Otherwise, we have a very messy situation on our hands."
What's your outlook for the commercial real estate sector in the next 6 months? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
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Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.
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