Commercial Real Estate: The Next Shoe to Drop?
There appear to be several misperceptions around the level of stress in the commercial real estate market today.
The extreme pessimism around the outlook for real estate is the result of multiple factors:
- Fallout of Silicon Valley Bank and subsequent scrutiny of regional banks broadly. This has resulted in tighter lending standards and put into question commercial real estate’s access to capital, particularly in the face of more immediate refinancing needs.
- Burden from the Federal Reserve’s interest rate hikes, as higher discount rates and borrowing costs have pressured cap rates.
- Fears of an economic slowdown, as segments of the real estate market tend to have a level of cyclicality associated with them.
