Commercial Real Estate Becoming an Increasingly Risky Investment in 2023

Posted on September 13, 2023 at 4:19pm by

Investing in commercial real estate has always been a high-stakes decision where all aspects should be considered. In recent years, the industry has proven to be an even more crucial part of business decisions, especially as it relates to office space.

This growing stress can be attributed to increased interest rates, popularity of working from home, and banking stress, according to an analysis by Moody’s Investor Service.

The increased number of employees who prefer to work from home has inherently and exponentially raised the risk for office-based real estate loans. A commercial workplace might not be worth the investment simply due to the number of people willing to utilize the space. This, paired with an overall increase in interest rates across the country, leads to uncertainty in investing in property. These factors affect more of the population than most would expect; Moody’s reported that office real estate loans represent $736 billion, or 16.7% of outstanding commercial real estate debt.

In addition, property owners with commercial mortgage-backed securities (CMBS) may have trouble refinancing their loans. This can be attributed to commercial real estate value decreasing as economic activity declines.

Because of this, a decline in commercial real estate investment could be expected. This has the potential to hurt banks, which happen to hold around half of all commercial real estate debts, according to Moody’s. Some of the largest U.S. banks named office commercial real estate as an area of growing uncertainty, with property values declining, borrowers not completing payments on time, rising interest rates and a slowing economy.

For borrowers who have loans out for properties they are unable to afford, filing for bankruptcy is an option to consider, with lenders likely willing to collaboratively look for a beneficial solution. Filing for Chapter 11 bankruptcy can help restructure a business by forcing creditors, like suppliers, banks and landlords, to accept reduced payments or payments over time while allowing your business to continue operations.

At Sader Law Firm, each qualified attorney is routinely in court on these types of matters throughout the states of Missouri and Kansas, including all bankruptcy courts. If you have questions about your CRE debt or are considering filing for bankruptcy, contact Sader Law Firm at (816) 561-1818 for a free phone consultation.