Thursday, March 28, 2024
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White House keeping watchful eye on CRE

The White House recently said it is monitoring developments in the commercial real estate industry, following recent strains in the banking sector, Reuters and other news outlets report. The monitoring comes as a number of smaller and mid-sized banks have “non-trivial” holdings in CRE.

Rapid rate hikes and increased vacancy rates due to remote and hybrid work environments have also negatively impacted the industry in recent months. Meanwhile, regional banks may look to minimize their risk taking when it comes to CRE lending given the recent fall of Silicon Valley Bank, Bloomberg reports.

Jared Bernstein, a member of the White House Council of Economic Advisers (CEA), told a Senate Banking Committee hearing on April 18 that CRE occupancy rates were well below pre-COVID levels and delinquencies had risen a bit recently, but they remained low in historical terms.

“The issue is very much on our watchlist,” Bernstein said during a hearing on his nomination to head CEA, when Democratic Senator Mark Warner asked about the impact of the collapse of Silicon Valley Bank (SVB) on the sector.

Warner said that approximately $6 trillion in outstanding commercial debt was related to the real estate market, and a “massive dislocation” was under way.

“That is a relevant, germane concern,” Bernstein said. He also acknowledged that federal actions to stabilize the banking system after the failure of SVB and Signature Bank helped improve the stressors, but it was worth monitoring the situation.

When it came to inflation, Bernstein admitted that the Biden administration’s use of the word “transitory” had not been helpful and had left open questions of how quickly inflation could be expected to start easing.

Bernstein said inflation was decreasing faster in the U.S. now than in Britain or the European Union, and core goods prices had been negative or flat for the past six months. He still felt that inflation had lasted longer than when the term “transitory” was first used, however.

“The word is not a helpful term. It’s too ambiguous,” he said.

 

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