The Banker's Suit

Is 2018 The Year Commercial Real Estate Prices Begin to Crater?

Written by Elizabeth M. Lally | Jan 8, 2018 4:53:13 PM

All signs seem to indicate that 2018 will be the year in which Commercial Real Estate (“CRE”) prices begin to crater and continue doing so for the indefinite future.

The reasons for this are two-fold. First is the rising delinquency rates of CRE loans. For example, in Omaha, NE between 5% to 10% of CRE loans were delinquent as of September 2017, and in Kansas City, MO at least 25% of CRE were delinquent.  Second is the enormous increase in retail borrowings that will come due starting in 2018 and continuing through 2025. Specifically, $100M worth of retail borrowings came due in 2017, and 18 retailers filed for Bankruptcy with many others announcing significant store closings. In 2018, the need for retailers to refinance this debt will really kick in with as much as $1.9B in high-yield retail debt coming due. From 2019 to 2025, the annual average retail debt that will come due will be nearly $5B. With over 8,000 store closures announced in 2017, rising delinquency rates in CRE loans, and a coming surge in the amount of retail debt coming due it only seems reasonable to think that the market will be flooded with distressed CRE and a subsequent collapse in CRE prices in 2018 and beyond. 

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