Here’s how the US commercial real estate crisis is affecting Europe

Problems US commercial real estate marketwhich have already affected banks NY And Japanmoved to this week Europeincreasing fears of wider spread of infection.

The latest victim is a German bank Deutsche Pfandbriefbank AG, whose bonds have fallen sharply on concerns about its impact on the sector. In response, he issued an unscheduled statement on Wednesday and February in which he said he had increased reserves due to “persistent weakness of real estate markets”. He described the current turbulence as “the biggest real estate crisis since the financial crisis.”

Lenders are increasing provisions for debt extended to property owners and developers as loans begin to deteriorate after rising interest rates slashed building values ​​around the world. On Tuesday, February 6th US Treasury Secretary, Janet Yellensaid commercial property losses are a concern for homeowners, but He added that he believes the problem can be solved..

For city offices USAwhere the return to work after the pandemic has been slower and less dramatic, value destruction has been particularly severe, with some predicting the overall impact has not yet been fully assessed. Analysts Green Street They say new depreciation of up to 15% may be required this year.

“The estimated value is still too high,” they write in a note. “Lenders who base their decisions on these estimates are more likely to suffer a loss in value,” and some may experience “stress” as a result.

The collapse of German lenders’ bonds was the latest in a series of warning signs. Moody’s Investor Service downgraded to “garbage” New York Community Bank after pointing out real estate problems while the Japanese bank Aozora Bank reported its first loss in 15 years due to provisions on U.S. commercial real estate loans.

Paul van der Westhusencredit strategist RabobankI affirm this “There are serious concerns in the US real estate market”. “This is not a problem for large banks in the US and Europe, but small German banks focused on the real estate sector are suffering a bit. However, now for them it is more a problem of profitability than solvency. “They have sufficient capital and are less exposed to the threat of runs than pure retail banks.”

Based on last week’s results Deutsche Bank AG Reserves for losses in the US commercial real estate sector were recorded to be four times higher than in the previous year. He warned that refinancing poses the biggest risk to the struggling sector as asset values ​​suffer.

Elsewhere in the city EuropeSwitzerland Julius Baer Group, LLC. said it would write off huge loans extended to a bankrupt real estate company sign. Although this is a specific problem, it adds to the general concern about the scale of the situation.

On Tuesday, Morgan Stanley called clients and recommended selling senior bonds German PBB. Bonds due in 2027 fell more than 5 cents to 97, according to CBBT assembled Bloomberg. For its part, bonds AT1 bank fell to 15 cents, to 36, between Tuesday and Wednesday.

German PBB said on Wednesday that although it had increased provisions for bad debts to 210-215 million euros for the full year, “remains profitable due to its financial strength”. Sonia Forstervice president Ratings of European financial institutions V Morningstar DBRSsaid that “the approach PBB in privileged places and Overall value relatively conservative models provide some protection against negative consequences.”

“However, given that refinancing risk remains high and fresh capital available to borrowers is limited, we are monitoring the situation very closely,” he said.

Care about PBB spread to other banks exposed to KRE. Bonds of Aareal Bank AG Over the past two days they have lost about 10 points and are now trading at 76 euro cents. In November it was reported that the cost of non-performing loans in USA has more than quadrupled compared to the previous year. Representative Area declined to comment.

Actions Deutsche Bank at 14:40 they were down about 3.7%. Frankfurtand those from Commerzbank AG fell 3.2%, both below the index Euro Bank Stoxx. BafinThe country’s banking regulator said it was monitoring the situation, declining to comment on specific lenders.

Last year, Germany’s central bank warned of risks posed by the commercial real estate sector, saying there could be “significant adjustments” which leads to an increase in defaults and credit losses. “The volume of outstanding loans provided by the German banking system to the U.S. commercial real estate market is relatively small, but is relatively concentrated in individual banks,” the bank said. Bundesbank.

Landesbanken Germans have also felt the pain from the impact of the commercial real estate sector; In the first half of 2023, the main state-owned banks – It’s frozen, BayernLB, LBBW And NordLB – recorded reserves totaling about $436 million.

If the losses KRE expanded to Europe There would be echoes of the 2008 global financial crisis through smaller German banks. Then it was the regional banks that faced problems when their influence on subprime mortgages in USA caused losses amounting to billions of euros.

“You have to be careful because you don’t know exactly where you hit rock bottom.”It is said Rafael TuinHead of Capital Markets Strategies at Tikehau Capital. “We recognize that there may be even more challenges in commercial real estate.”

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