Commercial Real Estate Issues Endanger Regional Banks

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Soros Fund Management Chief Executive Officer Dawn Fitzpatrick warned at last week’s Bloomberg Invest conference that a credit “contraction is invariably coming” and that additional banks would fail because “there are more problems under the surface,” Bloomberg News reported Friday (June 9).

Commercial real estate is one of the issues facing the banking industry, according to Bloomberg. According to the research, the work-from-home movement has reduced office prices, with over $1.5 trillion in commercial property debt expected to be serviced by the end of 2025. Meanwhile, rising loan rates have lowered the value of many residences.

According to the article, Torsten Slok, chief economist at Apollo Global Management, recently cautioned clients that America’s banks “have become much more vulnerable to a decline in commercial real estate prices.” 

Slok also projected that 700 banks, out of 4,700 federally insured lenders, exceeded the Federal Deposit Insurance Corp.’s (FDIC) commercial real estate loan concentration recommendation from 2006, which is twice as many as there were two years before. 

This revelation comes on the heels of a warning from Wells Fargo CEO Charlie Scharf last month, who warned of significant dangers in the office sector.