The Credit Edge by Bloomberg Intelligence Commercial Real Estate Time Bomb; Leisure Opportunity
Jan 4, 2024
Commercial real estate faces challenges as debt comes due, offices in financial centers under pressure. Delayed and cancelled projects, short selling of real estate companies signal distress. Leisure-sector bonds outlook slower, some junk cruise operators heading for investment grade. Business travel boosts hotels, car rental firms more challenged.
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Lagging Impact of Rate Hikes
- Interest rate hikes take 18-24 months to fully impact the economy.
- Current euphoria over potential Fed pivot ignores this lagging effect.
Commercial Real Estate Distress
- Commercial real estate faces distress due to $3 trillion in debt maturing within five years.
- Falling asset values and tighter lending standards exacerbate refinancing challenges.
Hidden Risks in Real Estate
- High demand for real estate masks underlying issues like interest-only loans and falling asset values.
- This makes refinancing difficult, forcing owners to inject more equity or default.