MURUKA Wiseman School issue Fatwa on Commerical Real Estate crisis, kym Cik Syed?

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https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed-toward-a-crisis

 

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U.S. Commercial Real Estate Is Headed Toward a Crisis​

by

• Dana M. Peterson

July 23, 2024

JasonDoiy/Getty Images
Summary.

The risks of U.S. commercial banks being overexposed to commercial real estate (CRE) have intensified as the global pandemic upended...more
U.S. banks face a reckoning: Over the next two years, more than $1 trillion in commercial real estate (CRE) loans will come due, according to The Conference Board calculations using MSCI Real Assets data.

Institutions with the most concentrated exposures, insufficient capital cushions, and limited lifelines from larger institutions or regulators face significant losses.
The damage could metastasize into a full-blown financial crisis if scores or even hundreds of small- and midsize commercial banks fail simultaneously. A worst-case scenario might include contagion to other economies and banking deserts across the U.S.

As the Federal Reserve keeps interest rates elevated and CRE risks worsen with falling property values, businesses will continue to experience restrictive financing conditions. Executives can nonetheless take steps to potentially mitigate the fallout — including examining banking relationships, extending debt maturities, and securing adequate working capital.

 

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There’s Trouble Brewing​

Hundreds of banks hold an outsized amount of CRE loans on their books relative to capital. Small banks (assets of $100 million to $1 billion) and midsize banks (assets of $1 billion to $10 billion) have CRE loan values far exceeding risk-based capital levels at 158% and 228%, respectively, according to The Conference Board calculations using FDIC Institutional Financial Reports data. This is compared to 142% for large banks (assets of $10 billion to $250 billion) and 56% for the largest banks (assets greater than $250 billion). The smallest banks (assets less than $100 million) issue few of such loans.

As CRE property values fall and the debt service on associated loans accumulates, borrowers are becoming delinquent or defaulting. The portion of these loans that are nonperforming more than doubled — from 0.54% to 1.25% — over the six quarters from the Q3 2022 cycle low, according to data compiled from BankRegData.com and the FDIC. Compare this with the just 0.87% rate six quarters after the cycle low, in the second quarter of 2006, which preceded the 2008–09 Great Recession.

However, only the largest banks are reporting increases in nonperforming loans and charge-offs (i.e., losses). Reported CRE loan delinquencies exceeding 90 days have surged from under 1% in mid-2022 to 3% in early 2024 for the largest banks, while delinquency reports for all other banks remain near 1%, according to The Conference Board calculations using FDIC Institutional Financial Reports data. (By comparison, delinquency rates reached 5% in 2010 in the wake of the 2008–09 Great Recession.)

 

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https://www.google.com/amp/s/amp.cn...-property-crisis-stimulus-challenges-intl-hnk

China is trying to end its ‘epic’ property crisis. The hard work is just beginning​

Analysis by Laura He, CNN
Published 6:14 AM EDT, Tue May 21, 2024

CFOTO/Future Publishing/Getty Images
Tower cranes are seen at a real estate construction site in Yantai, Shandong province, China, on May 19, 2024.
Editor’s Note: Sign up for CNN’s Meanwhile in China newsletter which explores what you need to know about the country’s rise and how it impacts the world.
Hong KongCNN —
Beijing has launched its most ambitious plan yet to rescue its property market, a development that investors have eagerly anticipated for months. But it’s far from certain that the measures will work.
The package is centered around Beijing’s adoption of a policy that has already been tested in a major city — asking local governments to buy unsold homes from developers and convert them into social affordable housing. It also features a reduction in mortgage interest rates and downpayment ratios, and more importantly, 300 billion yuan ($41.5 billion) in cheap central bank cash to fund state purchases of unsold properties.
The announcement last week swiftly followed an April meeting of the Politburo, China’s top ruling body, indicating that stabilizing the property sector has become a top priority for Beijing as it tries to revive growth in the world’s second biggest economy

 

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https://www.google.com/amp/s/amp.sc...sector-rescue-plans-have-not-been-good-enough​

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China property: Beijing needs US$2.1 trillion to revive sector as rescue plans have not been good enough, Goldman says​

• China needs more than 15 trillion yuan (US$2.1 trillion) to fix three problems in the housing market, Goldman says
• Rescue efforts have not been good enough and market indicators have continued to worsen, US bank says in a report to clients

 

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https://www.straitstimes.com/busine...eal-estate-market-not-a-concern-say-observers

S’pore banks’ exposure to ailing US commercial real estate market not a concern, say observers​

The US commercial real estate sector has been under pressure as interest rates have risen over the past two years. PHOTO: AFP

Angela Tan
Senior Business Correspondent
Updated

Apr 02, 2024, 11:04 AM

FacebookTelegram

SINGAPORE – Local banks’ exposure to United States property, including its ailing commercial real estate sector, is small as a share of the banking sector’s total loan portfolio, and does not present systemic concerns, market observers said.

The Monetary Authority of Singapore (MAS) monitors the country’s banking system exposure for financial stability purposes, they said, adding that the regulator’s mission will see it continuing to monitor developments in the US for potential contagion effects on Singapore.

The US commercial real estate sector has been under pressure as interest rates have risen over the past two years.

 

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Singapore accounts for around $55 billion or 60 per cent of DBS’ total commercial real estate exposure, and the local market is quite robust.

Hong Kong accounts for $18 billion or 20 per cent, down from $19 billion in the third quarter. About $13 billion is in mixed-use projects, and the remaining $5 billion is split equally between retail and office, Mr Gupta said.

The US accounts for $1 billion of the total commercial real estate exposure, while another $6 billion to $7 billion is in Britain and Europe, mostly in Singapore-led projects.

OCBC Bank, in its recent 2023 results, said loans to the US commercial real estate office space accounted for 0.7 per cent of the group’s loan book.

According to some estimates, the local asset management industry’s exposure to US real estate is also small. This includes exposure to US real estate investment trusts (Reits).

 

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The most obvious distress stems from Singapore-listed Reits with exposure to US commercial real estate, such as Manulife US Reit, whose portfolio was hit by low occupancy and sliding asset valuations.

It recently announced the resignation of its senior management, effective on June 30, even as it completed its recapitalisation plan.

There is also Keppel Pacific Oak US Reit, which is facing a double whammy of lower portfolio valuations and higher interest costs. The Singapore-listed Reit said in February that it is suspending distributions to shareholders for two years as it works on a recapitalisation plan.

Before the Covid-19 pandemic, Singapore investors were reportedly the biggest overseas commercial real estate investors in Asia, deploying billions into the United States.

According to CBRE, a total of US$32 billion (S$43 billion) in 2021 was poured by investors in Singapore into US real estate, marking a 164 per cent rebound from 2020, and higher than the pre-pandemic peaks.

But what was deemed a safe-haven investment before the pandemic has now soured as companies transitioned to hybrid working arrangements, resulting in a sharp decline in the need for large office spaces and a fall in demand for commercial real estate in the US.

To make matters worse, property owners faced high borrowing costs as the US Fed kept interest rates high.

By the end of 2023, the pool of distressed US commercial properties, led by offices and retail units, grew to US$85.8 billion, according to MSCI. Potential distress, which may precede full-blown financial trouble, totalled US$234.6 billion.

Consulting firm Klaros Group estimated that more than 280 US banks with nearly US$900 billion in total assets are at risk of needing capital because of high levels of commercial real estate and losses tied to interest rates.

S&P Global Ratings said property, including China’s distressed market, is likely the biggest risk to most financial institution ratings across the Asia-Pacific in 2024.

The credit rating agency expects that the strains on office-focused Reits and landlords in the Asia-Pacific will intensify over the next few years.

 

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Singapore’s offices await a new wave of tenants​

Andy Mukherjee
May 2, 2024 – 4.09pm


Listen to this article
4 min

After beating back pandemic blues, elevated interest rates, and a worldwide shift towards working from home, Singapore’s office market is finally looking jaded.
There’s no crisis around the corner, just a whole lot of uncertainty. An eight-year cycle in which the tech industry provided demand for working spaces may be coming to an end. Landlords simply don’t know who their next tenants will be.

Commercial buildings in the central business district in Singapore. Bloomberg
The nervousness is starting to show up in deals, vacancies and future projections.
Exhibit A: PGIM Real Estate’s efforts to sell the twin towers in the central business district have stalled as prospective buyers bid below what the real estate manager bought the property for.
Exhibit B: CapitaLand Integrated Commercial Trust, the city’s largest publicly traded landlord, reported committed office occupancy rate of 97.5 per cent in March, a 1 percentage point drop from December.


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Exhibit C: The South-East Asian city-state is expected to add a net 74,300 square metres of downtown workspace annually between 2024 and 2026, or 60 per cent more than the previous 10-year average, according to CBRE Research. It’s unclear if the additional supply will find adequate demand to sustain 12 straight quarters of rental growth.

Singapore is a global financial centre, but between 2015 and 2022 it’s the technology industry that showed great enthusiasm for renting offices in the city. The newly completed IOI Central Boulevard Towers in Marina Bay – with more than 111,000 sq m of net lettable area – is backed by a hefty take-up commitment from Amazon.

Still, with US commercial real estate in a slow-motion crisis because of higher interest rates and tech firms laying off more than 500,000 workers globally since the start of 2022, the lucky streak for Singapore landlords is now over.

This year won’t be all that bad as major leases will start coming up for renewal only towards the end of 2024, according to Savills Research, which is predicting a mild 2 per cent to 3 per cent drop in rents.

It’s the longer-term outlook that’s causing some anxiety. Over the next 10 to 15 years, Singapore will have completed its largest business district outside the central area as it seeks to spread out more evenly by blurring the boundaries between where people go to work and where they live, shop and dine.

 

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The Mysterious Hollowing Out of Singapore’s Alternative CBD​

Where did everyone go?
Photographer: Aparna Nori/Bloomberg
By Low De Wei and Ishika Mookerjee
June 8, 2024 at 9:14 AM GMT+8

Pretty Vacant​

A 90-minute commute to the office may not raise eyebrows in New York or London, but in Singapore?

A train ride, a bus journey and a lot of walking brought me to see one of the biggest stand-outs in Singapore’s normally stratospheric property market: the mysteriously emptying Changi Business Park.

From first glance, there is little indication that all is not well. The entrance is a gleaming futuristic station designed by Norman Foster’s architectural firm.

But look closer. “For rent” signs dot the park. Behind the slick glass facade of IBM’s two major buildings the rooms are mostly empty, with dust-covered cubicles, and Helen Keller’s quote about “together we can do so much” facing a dark, silent office.

Part of the problem lies in the economy, which is struggling against the headwinds of global trade disputes and China’s property woes. Things may get worse as the economic boost from Taylor Swift fades. Tech and finance layoffs have picked up, and tenants that once flocked to the park are cutting back, pushing vacancy rates close to 40%.

Changi Business Park was once touted as the “CBD of the East,” but in the surprisingly busy cafes and public spaces, employees are grumbling. One complained that it was more expensive to get a good coffee here than downtown. Others moaned about pricey and limited food options, while another told an alarming tale of seeing a large rat jumping across the stall counters in a food court.

But look closer. “For rent” signs dot the park. Behind the slick glass facade of IBM’s two major buildings the rooms are mostly empty, with dust-covered cubicles, and Helen Keller’s quote about “together we can do so much” facing a dark, silent office.

Part of the problem lies in the economy, which is struggling against the headwinds of global trade disputes and China’s property woes. Things may get worse as the economic boost from Taylor Swift fades. Tech and finance layoffs have picked up, and tenants that once flocked to the park are cutting back, pushing vacancy rates close to 40%.

Changi Business Park was once touted as the “CBD of the East,” but in the surprisingly busy cafes and public spaces, employees are grumbling. One complained that it was more expensive to get a good coffee here than downtown. Others moaned about pricey and limited food options, while another told an alarming tale of seeing a large rat jumping across the stall counters in a food court.

 

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Singapore’s Largest REIT Faces Pressure to Cut Office Sale Price​

• CapitaLand Integrated Commercial Trust is selling tower in CBD
• Sought as much as $595 million for 21-floor building: people

Singapore’s CapitaLand Integrated Commercial Trust is facing calls from buyers to lower its asking price for a prime office tower, in a sign of mounting pressure for discounts on commercial assets in the city state.

The real estate investment trust, the largest by market value in the Asian financial hub, has put 21 Collyer Quay in the city center up for sale, people familiar with the matter said.