- The US Banks are forced to sell real estate loans at a loss
- Due to multiple reasons, they are facing issues getting the right interest rate
According to a new report, US banks are going through a rough patch and are preparing to sell their commercial real estate. Surprisingly, they are not facing any payment issues from the debtors, but they’re still debt-ridden.
Reasons behind this
Based on the data of Financial Times, the closure of Q2 is one of the reasons behind this, but there are more factors at play. Chad Littell, an analyst at real estate research firm CoStar, says that he’s heard banks talking about selling loans more than ever in the past decade.
The California-based bank holding company, PacWest Bancorp is getting rid of its construction loan portfolio at dirt-cheap prices.
Also, as per the reports, banks will redefine the terms for commercial real estate mortgages before 2025. They intend to sell property worth more than $1.45 trillion.
Experts say that HSBC USA is already in the process of selling millions of dollars in commercial real estate loans. According to them, the bank is trying to finish its direct lending to American property developers while facing a loss of 5%.
Causing worry to investors
Another major reason behind this crisis seems to be the growing work-from-home culture. Not just small, but even big companies are resorting to it and it is hurting the commercial real estate business.
The real estate mogul Jeff Greene says that rising interest rates and the following shift towards more expensive capital are causing a lot of trouble. It is giving a hard time to inexperienced and unprepared investors.
According to him, people are worried sick about the payment of their loans when the construction is finished. That’s because, when it started some time back the rates were lower and now they’re rising. On the other hand, the prices of rent are going down.
Conclusion
American commercial real estate is witnessing a hard time generating the revenue they want. Owing to many reasons, the banks are forced to sell the properties at a very cheap price. Also, the banks are facing many issues due to growing WFH dynamics. The silver lining, however, is that it is not happening due to defaulters. The banks are getting their dues timely and the economic issues do not seem to have any impact on it.
Real estate often finds itself amidst many issues when there is a change in market dynamics. This time too, it seems to be facing the heat from all the changing work culture. However, like many other ups and downs, this will be over too, predicts the experts.
