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CRE blues

There is a a lot of hype about today’s inflation print. It’s important because it might trigger the Fed rates response, and it may mark the home stretch of this cycle. It is particularly important for the Commercial Real Estate sector, which is suffering from high rates, and therefore, high financing costs, and low occupancy as a result of the working from home policies that started after the pandemic. As you can see in the chart below, 7% of office CMBS are 30 days delinquent or more. That is dangerously approaching the maximums we had in the aftermath of the GFC, where 1 out of 10 CMBS where delinquent. After that period, the Fed began its Zero Interest Rate Policy that lasted 10 years. We might be at a similar juncture today, and the implications for CRE and the banking sector are huge.

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