The commercial real estate crisis in the United States is spreading. Starting in February, the financial reports of banks such as New York Community Bank (NYCB) and Aozora Bank have been affected by the burden of commercial loans, leading to a sharp drop in stock prices. The market is now watching to see if this crisis will cause a major storm in the banking industry.
New York Community Bank, which recently reported a loss of $252 million, is experiencing a drastic decline in stock prices. Arthur Hayes, the CEO of BitMEX, has suggested that Bitcoin may experience a similar trend of “falling before rising” as it did in March last year.
It is worth noting that the crisis in the commercial real estate market is not limited to the United States. Even Deutsche Bank in Europe is increasing its bad loan provisions by four times to $123 million.
On the same day that Aozora Bank collapsed, New York Community Bank, which acquired the crypto-friendly bank Signature Bank last year, also announced a significant loss of $252 million in its Q4 financial report, causing its stock price to plummet by over 40%.
Charlie Munger, the vice chairman of Berkshire Hathaway and a close associate of Warren Buffett, warned in May last year that a storm was brewing in the US commercial real estate market. As property prices decline, US banks are “filled with bad loans.” Munger predicted that the banking industry would suffer, but the situation would not be as bad as the 2008 financial crisis.
The decline in commercial property prices in the US is attributed to the decrease in demand for office spaces due to the rise of remote work caused by Covid-19, as well as the continuous increase in interest rates by the Federal Reserve. Regional banks with a large exposure to commercial loans are at the forefront of this crisis, and their exposure is much higher than that of large banks. A report found that commercial real estate loans account for 28.7% of small banks’ investment portfolios, compared to only 6.5% for large banks.
Apart from the banking industry, other sectors may also be affected by the commercial real estate crisis. Muddy Waters, a well-known short-selling firm, revealed in December last year that it was bearish on the mortgage trust fund BXMT managed by private equity giant Blackstone Group, suggesting that the fund could have bad loans of up to $2.5 to $4.5 billion. They also predicted that the fund would have to “significantly cut dividends” by mid-next year and face a liquidity crisis caused by the commercial real estate storm.