REUTERS/Carlo Allegri
- Distressed commercial real estate debt climbed to a 10-year high last quarter.
- Total distressed debt hit $80 billion, though there are $216 billion of potentially distressed properties.
- There's around $900 billion of debt in the sector set to mature by the end of 2024, the MSCI warned.
Pressures are building on the commercial real estate sector, with distressed debt on commercial properties climbing to a 10-year record the past quarter.
The value of commercial real estate properties that were in bankruptcy, repossessed, or in the process of liquidation ballooned to $80 billion over the third quarter, according to data from MSCI Real Assets cited by Bloomberg in a report this week. That's a $5.6 billion jump from the previous quarter, and the highest amount of distressed debt recorded in the sector in a decade.
Distressed debt tied to office buildings took up the largest share at $32 billion, or 41% of the total distressed debt. That was followed by retail properties, with a sum $21 billion, and hotel properties, with $14 billion in distressed debt.
Those figures are well below what followed the 2008 Financial Crisis, when total distressed commercial property debt peaked at over $150 billion. But there's an even a larger amount of current debt that's potentially distressed. Around $216 billion worth of properties that could be at risk of financial troubles, MSCI said, based on late payments on debt balances and slow leasing.
Experts have sounded the alarm on commercial real estate for months as higher interest rates, tighter lending conditions, and waning property values weigh on the sector. Higher borrowing costs are a particular worry for property owners, as there's around $900 billion in commercial real estate debt that will mature and need to be refinanced over 2023 and 2024, the MSCI said in a March report.