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

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Zinger Key Points
  • Distressed assets in U.S. commercial real estate have risen to nearly $64 billion in the first quarater of 2023.
  • An additional $155 billion of commercial property assets are potentially troubled, according to MSCI Real Assets.

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.

Photo: Unsplash

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