300. That’s more or less the number of local banks at risk of failure next year due to the downturn in the commercial real estate market, according to a research report published by the National Bureau of Economic Research.
If you remember the situation with Silicon Valley banks earlier this year, local banks are lending a lot to the local office market. I hear what you want to say. For example, haven’t we been waiting for the commercial real estate shoe to drop since half of us stopped going to the office? Isn’t this the same economist who called for a recession?
Well, yes and no.
I visited Steve McDonald’s Office Suite in 2021. He runs a law firm in the Flood Building, a 100-year-old office tower in San Francisco.
At the time, he tried to sell me an Office Depot desk for $1. No one ever came to use it. So today I asked him if he still had that desk and if he was still trying to sell it.
“You know, I don’t think this has market value. You have to pay people to pick it up, so this is a giveaway,” he told me.
McDonald said the building is less active than it was two years ago.
“It’s not gotten better,” he said. “I’m busy and have friends and colleagues, so I don’t feel lonely when I see ghostly things, but I think they’re more ghostly.”
This year, those ghosts are haunting office building owners and the banks that lend to them.
“I think it’s down 20%, maybe 30%. So that’s 20 to 30% less total space demand compared to where we were in 2019,” said Trepp, a commercial real estate data company. says Stephen Buschbom.
According to him, the delinquency rate for office loans has tripled in one year.
“We thought commercial real estate could have a very negative impact on small and medium-sized banks,” he said. “But remember, this is not their entire portfolio.”
Local banks are also doing well, lending to retail and industrial real estate.
Columbia Business School’s Tomasz Piskorski isn’t too confident about regional banks’ balance sheets.
“Banks are already in a precarious position even without the real estate crisis due to high interest rates, and the commercial real estate crisis will only make things worse,” he said.
Meanwhile, San Francisco’s Steve MacDonald is getting very close to moving his company to a new building, where it will rent less square footage.
If you need a last-minute Christmas gift, the desk is still available.
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