"US Office Loans Underwater: A Looming Threat to Banks and Real Estate"

Approximately 44% of office properties in the U.S. are underwater on their loans, posing a threat to banks as loan defaults could result in billions of dollars in losses. A 10% default rate on commercial real estate loans could lead to potential losses of $80 billion, putting many regional banks at risk of solvency runs. The rising cost of debt and doubling interest rates since the loans were originated make it difficult for a significant portion of CRE loans and office loans to refinance when debt matures. The Federal Reserve's potential rate cuts in 2024 may alleviate distress, but the exposure of banks to CRE distress remains a serious risk to their survival.