S&P Global Market Intelligence Report Finds Commercial Real Estate Lenders Feeling Stress but Weathering the Storm

Rhea-AI Summary

S&P Global Market Intelligence has released a report analyzing commercial real estate (CRE) market challenges. The study highlights that while higher interest rates and post-pandemic behavior changes are pressuring CRE borrowers, the impact varies across asset classes. The report reveals that approximately $950 billion of CRE mortgages are due in 2024, with rates nearly 200 basis points below current origination rates. While increased defaults are expected, particularly in the office segment, analysts suggest the stress won't be severe enough to threaten the US economy. Despite concerns, life insurers' mortgage loan holdings continue reaching record highs in 2024.

Positive

• Life insurers' mortgage loan holdings reaching record highs in 2024
• Office REIT valuations have improved from 2023 lows
• Market stress not expected to threaten overall US economy

Negative

• $950 billion in CRE mortgages maturing in 2024 face ~200bps higher refinancing rates
• Expected increase in defaults, particularly in office segment
• Reduced credit availability and higher borrowing costs for CRE loans
• Office REITs trading at significant discounts to NAV

NEW YORK, Nov. 20, 2024 /PRNewswire/ -- Changes in post-pandemic behavior and a larger debt service due to higher interest rates presents challenges to the viability of many commercial real estate borrowers. While those headwinds will lead to higher defaults, stress will differ across asset classes and could take longer to play out than many think. The newly published report, Commercial Real Estate Outlook: Weathering the Storm, is part of S&P Global Market Intelligence's Big Picture 2025 Outlook Report Series.  

In this new report, S&P Global Market Intelligence's Financial Institutions Research Team discusses how insurers, banks and their regulators are responding to concerns over potential stress in the commercial real estate (CRE) market. The report includes details on recent investment activity from life insurers in the CRE market and expectations for future loss content banks will record from the CRE segment. The report also highlights how publicly traded real estate investment trusts (REITs) can offer some insight into market conditions since they trade daily.

"Commercial real estate borrowers' mettle will be tested over the coming year as they seek to refinance loans coming due. Many borrowers will find credit less available or at least significantly more expensive, leading to more defaults, particularly in the office segment, but not all CRE loans face the same fate," said Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence. "Any pain should not be great enough to spur deleveraging in the financial system and threaten the US economy."

Key highlights from the report include:

• Banks with elevated CRE exposures have faced scrutiny from regulators and investors. Banks will feel some pain in their CRE books, particularly as borrowers seeking to refinance maturing credits find it more difficult to access credit, or they will at least face a significantly higher debt service given the increase in interest rates.
• S&P Global Market Intelligence's analysis of property records nationwide found that approximately $950 billion of CRE mortgages were set to mature in 2024 and carried rates nearly 200 basis points below those originated this year.
• Office REITs continue to trade at vast discounts to their estimated net asset value estimates, but valuations have improved from the low point in 2023. 
• Despite asset quality concerns, life insurers holdings of mortgage loans have continued to reach record highs in 2024.

To request a copy of Commercial Real Estate Outlook: Weathering the Storm, please contact press.mi@spglobal.com.

S&P Global Market Intelligence's opinions, quotes, and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendation to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security.

About S&P Global Market Intelligence

At S&P Global Market Intelligence, we understand the importance of accurate, deep and insightful information. Our team of experts delivers unrivaled insights and leading data and technology solutions, partnering with customers to expand their perspective, operate with confidence, and make decisions with conviction.

S&P Global Market Intelligence is a division of S&P Global (NYSE: SPGI). S&P Global is the world's foremost provider of credit ratings, benchmarks, analytics and workflow solutions in the global capital, commodity and automotive markets. With every one of our offerings, we help many of the world's leading organizations navigate the economic landscape so they can plan for tomorrow, today. For more information, visit www.spglobal.com/marketintelligence.

Media Contact 
Katherine Smith
S&P Global Market Intelligence
+1 781-301-9311
katherine.smith@spglobal.com or press.mi@spglobal.com

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SOURCE S&P Global Market Intelligence

FAQ

What is the value of CRE mortgages maturing in 2024 according to S&P Global (SPGI)?

According to S&P Global Market Intelligence, approximately $950 billion of CRE mortgages are set to mature in 2024.

How much higher are current CRE loan rates compared to maturing loans in 2024?

Current CRE loan rates are nearly 200 basis points (2%) higher than the rates on loans maturing in 2024.

Will CRE market stress impact the US economy according to S&P Global (SPGI)?

According to S&P Global Market Intelligence, the CRE market stress should not be severe enough to cause deleveraging in the financial system or threaten the US economy.

Which CRE sector is expected to see the most defaults according to S&P Global (SPGI)?

According to the report, the office segment is expected to experience more defaults compared to other CRE sectors.