Real Estate Is ‘Ticking Time Bomb,’ Says Lawmaker

Democratic New York Rep. Ritchie Torres called the commercial real estate market a “ticking time bomb” in September, as more than $1 trillion in loan come due this year, Politico reported.

A bill introduced by Ohio Republican Rep. Mike Carey in summer 2024 is aimed at helping real estate developers turn vacant office buildings into housing. “This would absolutely help lenders recoup some of their investment while allowing them to align with the current needs of the market,” Carey told the outlet, after introducing the bill alongside Democratic California Rep. Jimmy Gomez.

“The pandemic caused a seismic shift in work patterns,” Carey continued. “We see these vacant office buildings as a well of untapped potential.” His comments come shortly after a staggering $100 million loss on at least seven office properties (each). One Midtown Manhattan office building was sold at a 97.5% discount in July. (LEARN MORE: Christians Called To Shine ‘Light’ On ‘Dark Institutions’)

Not An Immediate Solution?

Converting office building to homes takes time and with inflation skyrocketing under the Biden-Harris administration, it’s unclear when developers will be able to make a dent in the situation. And the problem of debt doesn’t necessarily go away overnight.

“It will happen when it can, and it’s a good thing,” Commercial Real Estate Finance Council executive director Lisa Pendergast told Politico of the conversions. “It’s just not enough to save the office market in the near term.”

Some $930 billion in commercial real estate loans are coming due in 2024, Mortgage Bankers Association reported. “Commercial mortgages are financed on shorter terms than residential mortgages, often with balloon payments, or large lump sum payments, due at maturity. Many of those loans will have to be refinanced at a substantially higher interest rate than they carry now,” Politico explained. “About 70 percent of bank-held commercial real estate mortgages sit on the balance sheets of regional and smaller lenders — a source of alarm for regulators, since smaller banks don’t have the capital reserves or other lines of business to fall back on that larger banks have.” (LEARN MORE: State Finds County Violated Election Law In 2022)

What Happens Next?

“Excessive exposure to commercial real estate remains a ticking time bomb within the banking system,” Torres told the outlet. “An interest rate cut might ease the symptoms, but it will not cure the disease itself. ‘Extend and pretend’ can delay a crisis but it cannot make it magically disappear.”

“This storm has been hanging off the coast for some time, and the fact that it hasn’t sort of hit, sure, is good,” New York landlord RXR CEO Scott Rechler said. “But on one side of it, as interest rates have been higher for longer, it’s feeding the strength of that storm, right? So it makes it more like a hurricane Category 5 storm, when it comes ashore.” (DID YOU MISS? Democrat’s Radical 2024 Platform Released)

“There is a clear acknowledgement that if you’re kicking the can — this is different than 2008 — that this is not going to resolve itself in just, you know, prices and values re-inflating because of an injection of capital into the system,” he continued. “So at some point or another, the day of reckoning needs to come. I think it’s here.”

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