As the U.S. emerges from the COVID-19 pandemic, much attention has been given to rising inflation and the interest-rate hikes to combat it. But there is another looming threat with equally impactful and widespread implications for consumers and the economy: commercial real estate. About $1.5 trillion worth of commercial real estate loans are due to mature over the next two years, at a steep increase.
The combination of the tightening of lending conditions and loans refinanced at higher, unsustainable rates could potentially stifle construction and development in major cities struggling to bounce back from the pandemic. Failure to act will hurt more than just those holding these loans. The perfect storm brewing from higher interest rates, lower real estate values and an illiquid market will burden consumers, businesses, stall affordable housing expansion and further imperil the health of our major metropolitan areas.Consider that the bulk of commercial real estate loans were financed when base rates were near zero — far below today’s rates closer to 5%.
More than 70% of municipal taxes come from property taxes. Without a healthy market, developers will be forced to seek tax-abatement, resulting in lower collections for city budgets, and less resources for public schools, law enforcement, public transportation and other municipal services. A sustained lack of activity in U.S. cities will further diminish the vibrancy of businesses that rely on foot traffic from offices and residents — ranging from restaurants, retail stores and more.
Read: Commercial real-estate prices could tumble 40%, rivaling declines from the 2008 financial crisis: Morgan Stanley
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