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Banks Offloading Commercial Real Estate & Quickly

As we have been saying for a while - commercial real estate or "CRE" is in trouble. US Banks at this moment are now rushing toward a sale of properties - even ones up to date on payments. Nonetheless these institutions do not want exposure in CRE.

The alarm bell sounds even louder when firms are willing to take immense losses on their CRE portfolio to get rid of these positions. A real time warning that possibly the next asset class to fall, after regional banks is commercial real estate.

Reputable companies such as CoStar, a CRE research firm stated that "they are hearing more about the fact that banks are selling their loans than ever before." One of the main participators being HBSC who is currently selling hundreds of millions of dollars in CRE Loans, at a discount, to get rid of their lending to US property developer exposure.

Another example, PacWest who recently faced extreme turmoil in their stock price, sold $2.6 Billion in construction loans at a loss. Alarming, as banks are very reluctant to take a loss on any asset especially when borrowers are making their payments on time. But the fact of the matter is that the narrative is swiftly changing, work-from-home is effecting possible future rent payments, and delinquencies could rise fast. Coupled with a slow down in MBS' (Mortgage backed securities) banks are now holding onto more property development debt than regulators would like them too.

The move for banks to be offloading these loans comes at an eerie time as Executives and regulators have also begun raising alarms toward healthcare and CRE. The secret is out, the asset class is in trouble and institutions are doing their best to get away from this industry.

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