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Ambrose Evans-Pritchard: Rising wave of property defaults threatens hundreds of U.S. banks
By Ambrose Evans-Pritchard
The Telegraph, London
Friday, October 27, 2023
America's commercial property collapse is becoming a danger to the financial system.
Office blocks purchased with debt remain half empty, 18 months after the end of the pandemic. Thousands of buildings will have to be torn down. Hundreds of regional banks are sitting on crippling losses that they yet to acknowledge.
"It's a train wreck in slow motion," said Professor Stijn Van Nieuwerburgh, a property and finance expert at Columbia University.
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"The return to the office isn't happening. Data from turnstile swipes shows that occupancy levels are still just 49% of where they used to be. It has been stable for a year and a half," he said.
Sensors tracking physical presence in offices tell the same story. Hybrid work is here to stay.
Lenders are still gambling on resurrection, a reflex of "extend and pretend" in the hope that office rents will recover and that struggling borrowers will be able to service their debts again. "Banks would do better to bite the bullet now because losses are going to be much worse in two years," Professor Van Nieuwerburgh said.
His team calculates that America's office stock has lost 40 to 45% of its pre-Covid value, or will have lost it once market discovery exposes the damage already in the pipeline from two parallel shocks: shrinking rents and the most aggressive monetary tightening of modern times.
"We are starting to see distressed sales every day. Offices are selling at 50, 60, or 70% discounts. At these values the equity holders are wiped out, and lenders take a 30% loss," he said. ...
... For the remainder of the analysis:
https://www.telegraph.co.uk/business/2023/10/27/rising-wave-property-defaults-threatens-us-banks/
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