What Commercial Real Estate Stress Means for Banks and Bond Funds
Odd Lots
Bloomberg
4.4 • 1.6K Ratings
🗓️ 10 April 2023
⏱️ 50 minutes
🧾️ Download transcript
Summary
In the last month or so, two macro risks have become top of mind for investors. One is the stability of regional banks. The other is the weakness in the commercial real estate market. On some level, they're separate stories, but they're also linked, since regional banks tend to do more commercial real estate lending than larger, national banks. Of course, the links are complicated. CRE is not a monolith — and banks are just one source of financing for CRE projects, alongside private credit funds, insurance companies and other sources of capital. On this episode of the podcast, we speak with Jim Costello, chief economist for real assets at MSCI, about what to watch for.
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| 0:40.2 | Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. |
| 0:45.6 | And I'm Tracy Alloway. |
| 0:47.0 | Tracy, there's two things that people, well, there's all kinds of things people are, like, very attuned to these days. |
| 0:53.6 | But I would say what's going on with regional banks has obviously become a huge focus, you know, with the collapse of Silicon Valley bank. |
| 1:01.0 | And then what is going on with commercial real estate? And we talked about that recently and everyone knows like the office woes that are hitting major cities like New York. |
| 1:11.3 | Two things that are like top of mind for many people. |
| 1:14.1 | Well, and I think they started out sort of separate to each other because there were concerns about commercial real estate. |
| 1:22.6 | Even before Silicon Valley bank went bust. |
| 1:25.7 | But since then, and since we've had the turmoil in the banking sector, the deposit flight, there is a concern that that is going to also start affecting the CRE outlook. |
| 1:36.4 | And basically these two things are impacting each other and compounding each other at the same time, because of course, regional banks have quite substantial exposure to commercial real estate. |
| 1:48.8 | Right. So that was the interesting thing about SVB, specifically, which is that there seemed to be many problems there. |
| 1:55.8 | But one thing it was not, it did not really seem to be about the credit quality of the asset. |
| 2:01.0 | So it was a rate story, it was a deposit concentration story. |
| 2:04.5 | But it wasn't about like, oh, they have some sort of like asset side exposure to something troubled. |
| 2:09.7 | But then as you point out correctly, in the immediate wake, a bunch of people like sort of stuck up their finger like, oh, by the way, guys, like these regional banks are |
| 2:17.3 | right about, they also are like sort of like disproportionately the funders of this is it. |
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