Banking crisis: 'The real issue is the credit markets are essentially frozen,' PREIT CEO says
Joseph Coradino, Pennsylvania Real Estate Investment Trust CEO, discusses the state of commercial real estate in wake of the ongoing banking crisis.
Video Transcript
DAVE BRIGGS: Are tough times ahead for commercial real estate? Research from MSCI revealing retail real estate relies more on regional and local banks than any other credit provider. The combination of those banks alone accounts for 46% of credit for retail real estate.
So how could the tightening in the banking sector impact those retail companies? For more on that, we welcome in Joe Coradino, Pennsylvania Real Estate Investment Trust CEO. Nice to see you, Joe. Everything I'm reading about commercial real estate mentions this phrase-- doom loop. How concerned are you about that--
JOSEPH CORADINO: What was the phrase again? Doom what?
DAVE BRIGGS: Doom loop. Google it when we get done here. How concerned are you about commercial real estate where we sit today?
JOSEPH CORADINO: I'll tell you, I mean, commercial real estate, retail, is alive, and well, and prosperous right now. I mean, we're seeing traffic up 7% over '22. Over '21, traffic is up over 20%. Sales were up in February, sales were up in January.
We don't have the March results yet, but all things considered, our occupancy is projected this year to be north of 95%. So from a retail perspective, particularly in closed malls, life is good.
SEANA SMITH: Joe, what--
JOSEPH CORADINO: Go ahead.
SEANA SMITH: Apologies there, but what about from a lending perspective? Because when you take a look at the importance of regional banks, regional banks account for 46% of the lending in retail. Are you seeing any signs of weakness or any sort of blockage-- or, I guess, tougher access here to those lending standards?
JOSEPH CORADINO: I think the-- I think the lending aspect of it is a little bit of a "Tale of Two Cities." Certainly, the failure of some of the, I'll call them, technology driven banks-- I think that was isolated. I think if you look at the larger owners of commercial real estate, a good deal of their debt is fixed. We have over half of our debt, interest rates are fixed.
But the real issue is the credit markets are essentially frozen right now, right? It's not a question of how much can you lend, it's a question is, is there dollars available, particularly when one looks at both retail and office. And more often than not today, we're doing amend and extend, as opposed to new debt.
DAVE BRIGGS: And in terms of due, there is $270 billion in commercial real estate loans held by banks due this year. There's $1.5 trillion due to banks in the next two years. If you were in office, which you are not, you were at one point in your career, how would your level of concern change?
JOSEPH CORADINO: I'd be a bit more concerned than I am now. I think the situation in offices, we've seen a major behavioral shift in tenants-- the work from home. I mean, Philadelphia as an example, we're below 50% occupied in terms of people who come to work. And our vacancy rate is north of 20%.
I think as leases roll over, that will become even more pronounced, it will worsen. And office buildings, their reconciliation is to come. We feel like in the retail sector, we've been through it. We've come through COVID, we've come through customers shopping.
They actually shopped through inflation and recession. I think the office-- the office business is a little bit of a different business right now and one where the future has a fairly big question mark.
SEANA SMITH: Joe, when it comes to retail, and I know you own a ton of malls, you've done some changes, you've made some moves to adapt to the changing landscape. What have you done? And why is mixed use something that you see as attractive right now?
JOSEPH CORADINO: Well, for one, we've added residential, apartment buildings. We've added medical, entertainment, dining. Really, we've completely changed the basket of usage that we looked at for our properties.
If you think about a mall location, it's rare that it's not at Main and Main, if you will, and in the best location in a particular market. You take that and you add to it the fact that they have typically been very horizontal developments. And the ability to densify really allows us to be able to add uses and increase the amount of real estate on our property without changing impervious coverage, et cetera.
So it's sometimes well received by the municipalities. We're increasing taxes. We're driving our revenue stream. And we're diversifying our revenue stream-- better able to work through cycles in the economy.
DAVE BRIGGS: I'm trying to keep my wife away from the mall, and now you can live there. Joe Coradino, thanks a lot, man.
JOSEPH CORADINO: Keep shopping, man.
DAVE BRIGGS: I appreciate that, Joe.
