Cracks Emerge in Commercial Real Estate Lending
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
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The Federal Reserve recently dropped language referring to the banking system's "soundness and resilience" from its latest policy statement. This subtle change foreshadows emerging credit risks as large commercial real estate lenders take multi-billion dollar writedowns.
Loan Losses Eat into Bank Profits
New York Community Bank, one of the nation's biggest apartment lenders, reported a $552 million provision expense that led to a fourth-quarter loss and dividend cut. The dramatic increase in its loan loss reserves follows a review identifying $2 billion of "criticized" multifamily loans at risk of default.?
According to the CEO, these "substandard" loans accounted for 8% of New York Community's total $37 billion commercial real estate loan portfolio. Beyond housing, it also recorded a $42 million direct charge-off on an office building loan after the borrower stopped making interest payments.
While bank executives downplay comparisons to 2008, the parallels seem clear. Other banks are also disclosing significant US commercial real estate exposure losses, including Japanese lender Aozora and Swiss private bank Julius Baer.?
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Financial Engineering Masks Risks
Billionaire investor Barry Sternlicht estimates over $1 trillion in hidden leverage and valuation losses across different commercial sectors that banks have been slow to recognize. As rising rates disrupt properties' underlying cash flows, inflated collateral values from years of yield-chasing lending are crumbling.?
Banks have avoided marking portfolios to market through questionable financial engineering maneuvers. These include exempting some commercial loans from typical fair value standards and avoiding recognizing losses by extending maturities until deals can be refinanced.
But as maturing debt comes due over 2024-2025, industry experts warn that a massive default wave could force banks to account for billions in hidden write-downs. Yet surprisingly, regulators are closing emergency liquidity facilities despite record demand, suggesting blindness to looming threats.
Protect Your Wealth Amid Market Risks?
To protect your wealth from a potential 2008-style banking crisis, you may want to consider diversifying into alternative assets like private equity, private debt, and private real estate assets that can produce steady cash flow and upside returns uncorrelated to volatile public markets.
Now may be the ideal time to hire an experienced Private Wealth Manager. They can help mitigate risks and even tap unique yield opportunities during turbulent times.
I have partnered with one of Canada's top private wealth management firms to give high-net-worth investors exclusive access to institutional-grade alternative investments. Driven by a "capital preservation first" approach, we offer customized portfolios of private equity, private debt, mortgages, real estate and infrastructure designed to generate consistent positive returns regardless of market conditions.
As a valued Lasting Financial Security subscriber, we are offering a complimentary portfolio evaluation to discuss market risks and review the potential for alternatives to grow your wealth.
To book your complimentary consultation, email me at [email protected] or use my Calendly Link .
This no-obligation consultation may help you understand how we strive to protect and grow our clients' wealth.
The source article, linked here, provides full details: The Fed Claims the Banking System is "Sound and Resilient." The Banks' Balance Sheets Say Otherwise
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#realestatelending #interestrates #bankrisks
We agree. Now more than ever, investors should explore alternative options to traditional loans. Solutions like soft deposit financing can help secure multiple deals simultaneously, quickly, and hassle-free, allowing them to overcome temporary liquidity constraints that may be hindering their business ??