My May 9, 2023 blog on Commercial Real Estate pointed out that the large number of commercial loans maturing this year would be difficult and expensive to refinance leading to considerable stress in that sector.
Well, it is happening! MSCI just reported that $24.8 billion in office buildings were in distress at the end of the second quarter, surpassing the amount of troubled retail and hotel properties. This level of distress represents an increase of 36% as compared to the first quarter. The following chart shows that roughly $72 billion in all property types are distressed with the potential for an additional $162 billion that are delinquent on loan payments, experiencing high vacancy rates, or have maturing debt in the next year or so.
Real estate experts believe that problems in the office sector are likely to increase unless “return to the office” becomes widespread and/ or interest rates decrease materially. In any case, it is these extreme dislocations that create unusual profit opportunities for courageous and talented investors.