Why More Troubled Commercial Real Estate Loans Will Come Due In 2024

Sharp reductions in value for office buildings have many waiting for a major collapse in commercial real estate, which in turn would damage city and state budgets and possibly threaten major bank failures. Thus far, borrowers and lenders have avoided the worst damage. But their delaying tactics may be coming to an end, with potentially dire consequences.

The fears became prominent through economic analyses from NYU’s Arpit Gupta and Columbia University’s Stijn Van Nieuwerburgh. Their 2022 research predicted a “$664.1 billion value destruction” in U.S. office real estate.

They and other economists, along with market watchers, have since predicted major losses in office values—with news headlines including terms such as a “deluge of debt,” a “severe crash,” a “$1.5 trillion crisis,” and other dire predictions.

Although commercial real estate values have taken a serious hit, we haven’t yet seen the predicted meltdown or “apocalypse.” As I wrote in a September 2022 Forbes post, “we are not in a commercial real estate apocalypse yet, but we all need to keep one eye on the danger.”

The lack of a total CRE meltdown led some to argue fears were overblown. There would surely be pain as banks restructured their loans, with second-class offices facing the biggest hit. But some analysts discounted the potential for deep harm.

In April 2023, CNBC’s Tim Mullaney published a thoughtful analysis of “the coming commercial real estate crash that may never happen.” He emphasized that many lenders seemed to be weathering the storm, with tenants continuing to pay rent and banks not defaulting on CRE loans.

In June, the Washington Post’s Natasha Sarin wrote “Why the commercial real estate crisis