“‘The equity will be first. That’s the next shoe to drop in the U.S. Like everything else, it has been priced so tightly and there hasn’t been a commercial real estate crisis in the U.S. since the ’90s.””
— Scott Kleinman, co-president, Apollo Global Management
That’s a warning from Scott Kleinman, co-president at Apollo Global Management, in remarks to the Financial Times published Tuesday. Kleinman noted that the private market hasn’t yet to started to heavily mark down commercial real estate.
But there are signs of stress.
Issuance of commercial mortgage-backed securities, or bonds sold by Wall Street banks to finance commercial buildings, has fallen by about 83% so far this year to $9 billion, according to Deutsche Bank research.
While these bonds finance only roughly a 11% slice of the estimated $20.7 trillion commercial property market, the sector has long served as a visible gauge of the financial health of hotels, office buildings, apartment buildings, shopping malls and other income-producing real estate, MarketWatch’s Joy Wiltermuth reported last week.
The Tell: Commercial real-estate prices could tumble 40%, rivaling declines from the 2008 financial crisis: Morgan Stanley
Worries around rising interest rates and office buildings left partially empty after the COVID-19 pandemic were already causing heartburn before the collapse of Silicon Valley Bank in March.
Related: Office property woes could be tip of iceberg if credit freezes up as $1 trillion bill comes due
Regional-banking stocks have fallen sharply following March’s volatility. The SPDR S&P Regional Banking ETF
KRE,
+1.23%
remains down around 37% so far in 2023 after falling to its lowest since September 2020 last week.
The broader stock market has been relatively resilient in the face of banking woes, though some analysts contend that problems in the financial sector have been a weight on the S&P 500 index
SPX,
+1.30%,
capping rally potential.
U.S. stocks were flat to slightly lower on Tuesday, with the S&P 500 down 0.3%, while the Dow Jones Industrial Average
DJIA,
+1.00%
was off less than 0.1% and the Nasdaq Composite
COMP,
+2.19%
declined 0.6%.
