The Unprecedented Turmoil in Commercial Real Estate

The commercial real estate market is facing a slow-motion crisis due to higher interest rates and decreased demand for office space caused by the Covid-19 pandemic. With nearly a hundred million square feet of vacant office space, the cost of capital to support these buildings has almost doubled, resulting in decreased occupancy and value. The lack of price discovery has frozen the capital markets, and the government's policy guidance aims to provide support and direction to the lending community and borrowers. The "extend and pretend" approach allows qualified borrowers with quality assets to work through troubled debt restructuring and recreate the value of their assets. However, the impact on the regional banking system and the potential decrease in real estate values could have significant consequences for the overall economy and Main Street communities.