Commercial real estate crisis worst since 2008: German bank

  • Deutsche Pfandbriefbank AG said it was bracing for a continued decline in commercial real estate.
  • He called the downturn “the biggest housing crisis since the financial crisis.”
  • Shares of the German bank have fallen about 25% since the start of the year.

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Signs of trouble in commercial real estate continue to mount, with the latest warning from German credit giant Deutsche Pfandbriefbank AG.

In a statement released last week following the fall in the price of its bonds, the bank compared the current housing market crisis to the real estate catastrophe that shook global markets 16 years ago. The company said it had boosted its risk provisions for the coming year by setting aside up to $231.7 million to address challenges in the real estate sector.

“Despite these expenses, pbb remains profitable thanks to its financial strength – even in the biggest real estate crisis since the financial crisis,” the bank said in a February 7 statement.

The German bank said it had enough cash and assets to withstand the crisis and could operate for six months without new funding from investors.

The bank said its “liquidity coverage ratio,” which refers to its ability to repay short-term obligations, is double regulatory requirements, and it plans to release more details in March.

Commercial real estate fears have spread around the world over the past year, as central banks keep interest rates higher than they have been in the past decade and Work-from-home trends are crushing the value of office buildings.

In the United States, Moody’s Analytics reported that the national office vacancy rate reached a record high of 19.6% in the final quarter of 2023, approximately 280 basis points above pre-pandemic levels.

“Despite the increasingly optimistic consensus on the likelihood of a macroeconomic soft landing as well as positive labor market news, the permanence of dynamic hybrid models has effectively dampened office demand, making 2023 the year “the darkest year since the Great Financial Crisis.” Moody’s strategists wrote in a January note.

For similar reasons, office-to-residential conversions have increased 357% over the past three years, according to a Feb. 5 ResiClub analysis.

At this point, more than $150 billion in mortgages on U.S. office buildings are expected to mature in 2024, and about $300 billion is due in 2026, according to CommericalEdge. Homeowners may struggle to refinance this debt as they face higher interest rates and falling property values.