Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Nearly 20% of office spaces are currently empty across the United States. This is higher than the

vacancy rate during the 2008 global financial crisis, and it's worse

in places like San Francisco and downtown Los Angeles, where more than a quarter of offices

are empty.

Rising interest rates, falling prices, and the trend of hybrid working in the wake of the

pandemic, reduced demand for office space, straining the

commercial property market, and these troubles have only gotten worse as the recent bank

failures raised fears about other regional banks that account for the bulk of commercial

real estate loans running into trouble.

Economic concerns and the regional banking crisis have led US banks to tighten their lending

standards for all categories of commercial real estate loans according to the latest

senior loan officer survey published by the Federal Reserve. A majority of US banks said they tightened credit standards for loans secured by non-residential

properties in the first quarter, while none said that they eased standards.

Some lenders are even requiring personal guarantees from property owners in which borrowers pledge their personal

assets to secure a mortgage. The extent to which these more restrictive lending practices

prevent existing borrowers from refinancing commercial real estate loans still remains to be

seen. If companies continue to give up their leases and if demand

for office space remains as slow as it has been, office landlords will struggle to collect

enough rent to keep up with mortgage payments to pay off commercial loans. A lot of these loans

are coming due in the next year and many building

owners need to refinance their debts at a time when low occupancy has eroded building values,

...