UBS predicts a rise in commercial real estate loan defaults, although not a 2008-like credit crunch crisis
Per BI
UBS is predicting an increase in defaults for commercial real estate loans. However, the impact isn't expected to be as bad as the global financial crisis in 2008.
UBS Global Wealth Management Chief Investment Officer Americas, Solita Marcelli, wrote a note to clients detailing their view regarding their expected rise in commercial real estate loan defaults. However, they assured readers that it didn't "pose a wider systemic risk."
Marcelli: "Now, an expected credit crunch on the back of rising cost of funding for banks may further compound its troubles... CRE exposure at banks is currently manageable with potential loss levels even in a hard-landing scenario likely causing earnings pressure rather than capital depletion."
UBS noted that regional and local banks had serviced about 70% of commercial real estate loans. They also highlighted that $1.2 trillion of the total $5.4 trillion in outstanding CRE debt was set to mature in 2023 and 2024.
Marcelli: "While questions remain about refinancing at higher rates — it's important to contextualize the size of the problem... we don't believe a repeat of the 2008 liquidity crisis is likely — where capital markets essentially closed for financing,"
Recently, mortgage loan applications reached their lowest in almost 28 years after they fell by 5.7% from a week before March 8, 2023. It was noted that during that time, 30-year fixed mortgage rates were still below their numbers in October 2022.
It was also recently found that 1.9% of multifamily properties that were financed with Commercial Real Estate Loan Obligations weren't able to earn enough from rent to cover their debts. This came as banks started to lose an average of $301 for every mortgage that originated in 2022, representing a 113% decrease from how much they had earned a year before.
See flow at unusualwhales.com/flow.
Other News:
- Mortgage loan applications dropped by 6% over the last week, reaching the lowest in almost 30 years
- 1.9% of multifamily properties financed with Commercial Real Estate Collateralized Loan Obligations didn't earn enough rent to cover their debts
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