Banks likely to lose over $2B in commercial real estate slowdown
The commercial real estate market takes more hits under falling occupancy rates, but could banks be feeling the hurt even more? Yahoo Finance Reporter Dani Romero joins Rachelle Akuffo to examine calls estimating banks could lose up to $2.5 billion over commercial real estate pains, while also commenting on mall operator Unibail-Rodamco-Westfield's (UNBLF) decision to hold onto American properties.
Video Transcript
RACHELLE AKUFFO: The ongoing weakness in the office sector isn't going anywhere. The major headwind will cost banks as much as $250 billion. Let's bring in "Yahoo Finance's" Dani Romero with more. Dani, what are you watching on this?
DANI ROMERO: Rachelle, what's going on in the commercial real estate sector doesn't look pretty. And the major stress here is the low occupancy rates due to the ongoing work-from-home phenomenon, the hybrid that we have been seeing, and also the higher interest rates is putting pressure on landlords that have to refinance their loans in the near term.
Most of the owners of the commercial real estate sector have been able to take advantage of those near zero interest rates over the past decade. Well, that's not happening anymore. And if we combine the higher rates with the falling property values, that could be one-two punches that the commercial real sector is dealing with. And could lose-- some of the banks could lose over $2.5 billion. That's what one hedge fund manager is saying out there.
Kyle Bass, he revealed that banks are really under a lot of pressure right now, especially the office space. And that could represent about 10% of the combined $2 trillion in equity in commercial real estate that the banks are exposed to. Bass says, that there's other areas of commercial real estate that actually are doing well that have somewhat of a leverage right now. And are solid.
Some of those are the industrial real estate, market, multifamily housing, which we definitely need in the US, and the data center spaces. Rachelle?
RACHELLE AKUFFO: And staying in commercial real estate, let's also pivot to the high-end mall space. We're seeing the European owner of Westfield now scrapping the plan to sell nearly all of its US properties. Unibail, rodamco, westfield is planning to hold some of their top performing malls. So Danny, can you tell us what this means then? At first, everyone thought the mall was dead.
DANI ROMERO: Well, not every sector in commercial real estate is doom and gloom. And this is just a prime example from the European owner of the Westfield malls really backtracking and pulling back its original plans of really getting rid of its American profile. So last year, the company said that it would sell its American profile. But now, the plans have really changed after seeing what's going on on the forefront. But, also, we have to highlight that they have invested billions of dollars in some of these malls. And if you invest, most, likely, some of that will be in return.
And so that's what we're seeing. One of the prime examples of this is that they expanded in the San Jose, San Francisco area. And so that mall has really been seeing a lot of uptick. But, overall, this really does signal that the mall may be not as is dead as of right now. But adding those attractions, investing in these malls is likely obviously pulling some foot traffic in Rachelle.
RACHELLE AKUFFO: So perhaps, the [? mall ?] is on crutches, but at least not dead yet. There's still some movement going on there. Thank you as always our very own Dani Romero, Thanks so much.
