Commercial real estate is in trouble. Why you should be paying attention
New York CNN —Economists are growing concerned about the $20 trillion commercial real estate (CRE) industry.
After decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall.
Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe.
“I do think you will see banks pull back on commercial real estate commitments more rapidly in a world [where] they’re more focused on liquidity,” wrote Goldman Sachs Research’s Richard Ramsden in a note on Friday.
Real estate is the most shorted industry globally and the third most in the United States, according to S&P Global.
Before the Bell spoke with Xander Snyder, senior commercial real estate economist at First American, to find out.
Before the Bell: Why should retail investors pay attention to what’s going on in commercial real estate right now?
Xander Snyder: Banks have a lot of exposure to commercial real estate.
So the health of the market has an impact on the larger economy, even if you’re not interested in commercial real estate for commercial real estate’s sake.
Credit was getting scarce for all commercial real estate and a fresh bank failure on top of that only exacerbates that trend.
I think more regulatory scrutiny is coming for smaller banks, which tend to have a larger concentration of commercial real estate loans.
A lot of people hear commercial real estate and they think it’s all the same thing and the trends are they’re all the same but they’re not.