US Commercial Real Estate Faces 'Apocalypse' as Troubled Assets Surge To $64 Billion: 5 Stocks To Monitor

Distress is rapidly spreading in the U.S. commercial real estate industry, with the volume of troubled assets escalating to nearly $64 billion in the first quarter of 2023, a 10% rise from the previous quarter.

This alarming trend is highlighted in a recent report from MSCI Real Assets, which also warns of an additional $155 billion of commercial property assets teetering on the brink of distress.

The report further revealed retail properties, including malls, were the most troubled type of real estate, with nearly $23 billion of distressed assets tied to the sector.

Office buildings, struggling with weaker demand due to the rise in remote work and job cuts, accounted for nearly $43 billion of potential distress, the most of any sector.

Manhattan was the most active market for distressed asset sales, with $2.6 billion of deals, or 19% of U.S. transactions, in the 12 months through May.

Apocalypse Hits Offices Causing A Surge In CRE Loan Delinquencies

According to a New York Post article, the inflation wave and the new era of remote work are creating a global commercial real estate "apocalypse" where properties sit vacant and owners with loans coming due hand their keys back to lenders.

The article quotes Harold Bordwin, a managing director at Keen-Summit Capital Partners, who stated that even if a building has the same tenants and income as it did three years ago, if its debt is maturing today, it has a real problem.

Adding to the crisis, a report from S&P Global Market Intelligence showed 576 American banks had exceeded regulatory guidelines on commercial real estate loan concentrations, a 30% increase from a year ago. This overexposure comes at a time when commercial real estate loan delinquencies are on the rise, with the first quarter of 2023 seeing a sharp increase to 0.77%.

Read Also: Disturbing Trend For Real Estate Investors: Homes Sold At A Loss, Numbers Not Seen Since 2016 — But This Booming Alternative Is Open To Anyone

5 Real Estate Stocks To Watch

Here are five stocks that have significant exposure to the commercial real estate market and could be impacted by the current trends:

1. SL Green Realty Corp. SLG: This is a leading real estate investment trust (REIT) that focuses on owning, managing and developing commercial properties in New York City.
2. Hudson Pacific Properties, Inc. HPP: This company specializes in acquiring, repositioning and operating office and studio properties in West Coast markets.
3. Vornado Realty Trust VNO: Vornado is one of the largest owners and managers of commercial real estate in the U.S., with a diverse portfolio of office, retail, and residential properties.
4. Office Properties Income Trust OPI: This REIT owns and operates a portfolio of office buildings primarily leased to government tenants across the U.S.
5. Douglas Emmett Inc DEI: This real estate investment and property management company has a focus on office and multifamily properties in high-demand markets such as Los Angeles and Honolulu.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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