Troubled US Commercial Properties

Troubled US Commercial Properties Surge To US$64bil

USA – Data from MSCI Real Assets showed that the volume of distressed commercial real estate (CRE) in the United States rose by 10 percent to almost US$64 billion in Q1 2023, according to a recent report from Bloomberg.

More worrying is that the issue is spreading across the country’s commercial property sector, with the amount of potentially distressed assets reaching nearly US$155 billion.

Higher borrowing costs have hit the industry hard, dragging down selling prices and prompting some office and mall landlords to choose to default. Most of the potential distress is connected to assets which need refinancing at a time when banks have tightened credit after the closure of several regional lenders in the country.

“Should this potential distress be upgraded to full-blown trouble, an increase in distressed asset sales and declining prices would be inevitable,” stated MSCI Real Assets researchers in its report. The researchers include Alexis Maltin and Jim Costello.

As of the end of March 2023, the most distressed type of commercial property was shopping centres, with the volume of troubled assets hitting almost US$23 billion. On the other hand, around US$18 billion of office properties were deemed in distress during the period.

However, the US office market accounts for nearly US$43 billion of potential distress – the most of any commercial real estate class. Offices are facing a larger wave of maturing debt amidst weaker rental demand due to the recent massive retrenchments and the rise of working from home (WFH). In comparison, distress in the retail property segment “appears to be cooling,” noted the report.

In particular, Manhattan emerged as the most active market for distressed property sales, accounting for US$2.6 billion or 19 percent of the overall transactions in the 12 months to May 2023. It’s followed by Los Angeles (US$746 million) and Houston with US$465 million.

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