Bank Contagion Fears Shake The Foundation Of Commercial Real Estate At Its Core

The recent marquee failures of two regional banks have put the lifeblood of the commercial real estate industry under threat. Around 80% of commercial real estate lending is provided by banks with assets less than $250B, meaning that these smaller banks are a huge source of CRE investments. The Federal Reserve, FDIC, and Treasury Department have all taken steps to stabilize the system, but the fear of contagion still looms. This could cause a reduction in liquidity and an increase in cap rates, paving the way for a major value adjustment in the CRE sector. Additionally, the CMBS market may be able to provide liquidity if the balance sheet lenders dry up. The future of CRE investing depends on the confidence of the banking system, and it remainsto be seen if the government’s measures are enough to prevent further failures.

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