CRE Debt To Break The Fed?

CRE Debt To Break The Fed?

The Fed is already doing back door Quantitative Easing (QE) as a result of weakness in the Banking sector. What if CRE defaults were to accelerate? With high Office vacancy rates and $3.6 Trillion in CRE debt outstanding, there ought to be plenty more defaults in 2023.

Earlier this month Blackstone defaulted on $562 million credit backed by offices and retail space. CRE Office vacancy rates are climbing. From what I’ve heard only new class A space in Manhattan is moving while legacy class A space suffers from high vacancy rates. I don’t have a great sense as to what degree the CRE Office market is being propped up by COVID relief measures. San Francisco’s Office market is hollowing out. I’ve got to believe that Manhattan is next as some of the largest Tech companies retrench (yes, the largest Tech firms have a large CRE footprint in Manhattan).

Powell has got to be getting an earful from his Private Equity pals about a prospective CRE bail out. My sense is that an enormous $2-3 Trillion Omnibus Bill will be pushed by the Biden Administration this summer in conjunction with the raising of the debt ceiling. Included in that Omnibus package will be CARES Act Part 3 , a large part of which will be dedicated to propping up the debt market from CRE loans to CMBS to High Yield corporate credits and everything in between.

NAR – CRE Office vacancy rate changes:

CRE Debt: $3.57 Trillion and counting:

Green Street CRE Index: