We admit it: we’re somewhat obsessed with commercial real estate here on FT Alphaville – but not without good reason.
So we were reassured to note that the topic of US commercial real estate is also preoccupying Guy Debelle, an assistant governor at the Reserve Bank of Australia.
In a wide-ranging speech in Sydney on Tuesday (their time), Debelle outlined what he considered to be the “lingering risks” to financial markets in the US, Europe and UK.
Debelle is quite concerned with the exposure of what he described as the “second tier (and beyond)” of the US financial system to loan portfolios that are “very regionally concentrated with a sizable weighting to commercial property.”
We quote:
The experience of previous cycles indicates that the commercial property cycle takes a long time to unfold, and we may have some way yet to travel. These problems in the banking system will almost certainly hinder credit provision in the US, particularly to the SME sector, which doesn’t have the direct access to capital markets that larger corporates have.
Even though one might be relatively confident that the major financial institutions have the ability to absorb the loan losses still to come, there may also be a concern that there could be an adverse effect on public confidence, should these institutions report further quarterly losses. The general public might well be surprised that losses are continuing to occur, given the sizeable public sector support that has already been provided.
Just another reason to keep those tin hats somewhere handy, really.
Related links:
The feedback loop of commercial real estate, regional banks and unemployment – FT Alphaville
The not-so-small small bank CRE problem – FT Alphaville
‘The most serious wave of commercial real estate difficulties is just now beginning’ – FT Alphaville
US CMBS deliquencies jump to 5.42%, Moody’s says – FT Alphaville