“Biggest real estate crisis since the financial crisis” – Economy

Whenever the US real estate market weakens, investors all over the world take notice. Finally, the global one also had Financial crisis 15 years ago originated in a crash in house prices in the USA. Unlike back then, it is now primarily the prices of commercial real estate that have been unsettling investors, and have been for many months. It wasn’t even a year ago that the US real estate market triggered a crisis on the financial market, when several US regional banks went bankrupt and in Switzerland even the major bank Credit Suisse had to be rescued.

Behind this is a dangerous mix of changing real estate use and rising interest rates: After Corona, many employees in the USA did not return to their offices. Companies are therefore allowing rental agreements to expire. Added to this are the layoffs by tech companies. This depresses rents and prices. In addition, the increased interest rates make follow-up financing more expensive. In the worst case, the companies no longer pay their rent and simply pass the property on to the owner or bank. All of this particularly affects the US regional banks, which are heavily involved in this market.

Things had gotten quieter recently. At the beginning of the year, however, many banks publish their business figures, and they show that the crisis is not over. Another US regional bank, New York Community Bancorp, has run into difficulties in recent days, and now the question is again what consequences this will have for European and Asian banks, some of which are also heavily involved in the US real estate market .

This week, for example, the Deutsche Pfandbriefbank from Garching near Munich made a name for itself. The bond prices of the real estate bank, whose loan book recently accounted for 15 percent of the US, collapsed after the investment bank Morgan Stanley advised its own customers to sell the bank’s bonds. as Bloomberg reported. In order to reassure investors, the bank’s board of directors had to publish preliminary figures for 2023 earlier than planned. The bank said it was financially strong and continued to be profitable, but called the situation the “biggest real estate crisis since the financial crisis.” It was only in the fall that the Deutsche Pfandbriefbank The risk provisions for bad loans are massively increased.

It wasn’t just the Pfandbrief bank that was affected, Deutsche Bank’s shares also fell by more than five percent at times on Wednesday. Germany’s largest financial institution has granted loans worth around 17 billion euros for US commercial real estate and is the most heavily involved in this market among German banks. CFO James von Moltke said the failures will be able to cope last week at the annual press conference said that they would probably be higher in the first and second quarters of 2024 “than we would like”.

In any case, many financial institutions in Europe currently have to Bankruptcy of the real estate entrepreneur Benko cope. The Austrian’s financial backers primarily include state banks such as Helaba, Landesbank Baden-Württemberg (LBBW) and Bayern LB, but also savings banks and, above all, insurance companies. Many in the market were now worried about second-round effects because in such a situation, properties would often have to be sold on a large scale at low prices. Fortunately, there is no sign of this yet, says a bank boss who did not want to be named. Everyone was now hoping that the central banks would soon cut interest rates and that the situation would calm down by then at the latest.

Many investors are hoping for a rate cut soon

In any case, the US Federal Reserve Bank is likely to intervene if necessary and provide banks with liquidity, as was the case during the crisis a year ago. US Treasury Secretary Janet Yellen said she was monitoring the situation closely. The situation with commercial real estate is worrying, but under control. The supervisors would ensure that banks have sufficient provisions for loan losses and that there is sufficient liquidity in the financial system.

It is currently completely unclear whether the situation has what it takes to become a risk for the financial system. Overall, German banks have extended eight percent of their loans in commercial real estate financing – a risk that LBBW analysts described as “acceptable” last year, especially since real estate in Germany is usually not 100 percent financed by loans. The question now is how low the prices will fall.