Thirteen years of record-low interest rates drove record public and private capital into all forms of real estate and related credit/securities from 2010-2022. Now, sharply higher interest rates and contracting credit on offer are bursting the bubble as forced sales rise.
One broker estimates that 90 percent of office buildings in New York were distressed — either in terms of the level of debt or occupancy. “I think we are on the front edge of the forced sales,” this person said. And it’s not just New York. See Financial storm bears down on US commercial real estate:
The results are evident in mounting strain around the country — from New York developers handing back obsolete office buildings to lenders, to foreclosures on heavily indebted apartment complexes in Houston and defaults on hotels and shopping malls in San Francisco. Banks, under scrutiny from regulators and investors, are now beginning to offload even performing property loans at a loss.
“I am not sure people have come to terms with how long the storm will hover and how much damage it will do,” said Scott Rechler, president of RXR, one of New York’s largest developers, likening the situation to a hurricane making landfall. “As for multifamily and other [commercial real estate], I believe that the markets are underestimating its potential severity.”
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