Came across an interesting article in the WSJ recently. It appears that the underwriting standards of lenders for commercial property became somewhat lax over the last few years, and there is a weakening in commercial real estate debt. This is very similar to as they did for residential lenders. Granted, the commercial debt outstanding ($3.4 trillion) is somewhat smaller than residential property debt in the US ($11.2 trillion). But it’s larger than US consumer credit outstanding ($2.6 trillion).
Weakening in Commercial Real Estate Debt
What makes the weakening in commercial real estate debt worrisome is that banks hold roughly 50% of outstanding commercial debt. The banks are heavily invested in this debt.
So many financial institutions may not be out of the woods yet, as assets they expected to be safer turn out not to be so, in a weakening economy with declining consumer spending.