The Office Real Estate Crunch!

"A recent paper on Commercial Real Estate and US Banks found that 44% of office loans are likely already in “negative equity” and that the majority of office loans are likely to encounter “substantial cash flow problems and refinancing challenges” in the coming years."

"According to Moody’s Analytics, owners of 224 out of the 605 large buildings with mortgages expiring this year will struggle to refinance, either because the properties are overleveraged or because their rental performance is poor."

"It might be reasonable – based on this research to expect that any increase in banking reserve requirements brought about by delinquencies in commercial real estate loans would have less of an impact on the overall economy today than it would have had in the past."

"US Banks can, and likely will use these structures to reduce their exposure to risky loans, but doing so will lower their earnings."

"Economists at Goldman Sachs built a model showing that current prices for struggling office buildings are still too high for conversion to residential use to make sense. They estimate that office prices would need to fall an additional 50% for conversion to housing to be financially feasible, meaning that offices will likely remain underutilized in the near term."