Banking’s next threat might be commercial real estate

IF MARKET participants are wringing their hands over the potential fallout from the collapse of Silicon Valley Bank (SVB), just wait until they look at the banking industry’s exposure to the rapidly weakening commercial real estate sector.

It seems as if every few days, there is news of some big property going into default. Within the past few weeks, an office landlord controlled by Pacific Investment Management defaulted on about US$1.7 billion of mortgage notes for seven buildings in places such as San Francisco, Boston and New York.

Before that, a Brookfield Corp business defaulted on loans tied to two Los Angeles office towers. A US$1.2 billion mortgage on a San Francisco complex co-owned by former president Donald Trump and Vornado Realty Trust has shown up on a watchlist of loans that may be in jeopardy.