Reinhard Krause/Reuters
- Deutsche Pfandbriefbank AG said it's bracing for an ongoing decline in commercial real estate.
- It called the downturn "the greatest real estate crisis since the financial crisis."
- Shares of the German bank have declined about 25% year-to-date.
Signs of commercial real estate distress continue to mount, with the latest warning coming from German lending giant Deutsche Pfandbriefbank AG.
In a statement last week that followed a slump in the price of its bonds, the bank likened the current property market crisis to the real estate catastrophe that roiled global markets 16 years ago. It said it shored up its risk provisioning for the year ahead with as much as $231.7 million set aside to deal with pain across the real estate sector.
"Despite these expenses, pbb remains profitable thanks to its financial strength – even in the greatest real estate crisis since the financial crisis," the bank said in a statement February 7.
The German bank said it has enough cash and assets to withstand the turmoil, and that it can operate for six months without fresh funding from investors.
The bank said its "liquidity coverage ratio," which refers to its ability to pay off short-term obligations, is double the regulatory requirement, and it plans to publish further details in March.
Commercial real estate fears have swirled worldwide in the last year as central banks hold interest rates higher than they've been for the last decade and work-from-home trends crush the values of office properties.
In the US, Moody's Analytics reported that the national office vacancy rate hit a record 19.6% in the final quarter of 2023, about 280 basis points above pre-pandemic levels.
"Despite the increasingly optimistic consensus on the likelihood of a macroeconomic soft landing along with positive news from the labor market, the permanence of dynamic hybrid models has effectively muted office demand, making the year of 2023 the most downbeat since the Great Financial Crisis," Moody's strategists wrote in a January note.
For similar reasons, office-to-residential conversions have spiked 357% in the last three years, a ResiClub analysis said on February 5.
To that point, more than $150 billion of mortgages on US office buildings are set to mature in 2024, and about $300 billion are due in 2026, according to CommericalEdge. Landlords could struggle to refinance that debt as they deal with higher interest rates and lower property valuations.