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To understand how real estate lenders are going to act through this crisis, to know how, when and where distress is going to come, you have to understand the complex mechanisms of bank regulation.
The way bank regulations work means distress isn’t likely to come through quickly: It may not start to manifest until next year. But those same regulations also mean that borrowers, whose incomes are suffering as tenants withhold rent, can’t be given a free ride to miss loan repayments indefinitely. The pressure on all parties affected by the coronavirus will eventually start to put cracks in the system.
Behind a big picture that looks healthier than during the last crisis lies a more nuanced view — the commercial real estate lending sector is still likely to see significant distress, and a credit crunch of sorts is still likely in the coming months and years.
Going into the coronavirus-induced recession, commercial real estate lending is in a much better position than it was in 2008. Banks are better capitalised, loan-to-value ratios across the board are lower and there is a much more diverse range of…
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