Fed Warns of CRE Price Disruption and Declines

In its recent Financial Stability Report, the #Fed said, “The vulnerability stemming from elevated #CRE valuation pressures, coupled with a dim outlook for the sector as indicated by recent declines in equity real estate investment trust (#REIT) prices, suggests that CRE may undergo a substantial repricing in response to disruptions generated by the COVID-19 pandemic. For instance, since late February, the hospitality and retail sectors have experienced precipitous declines in demand because of social distancing, putting the ability of these sectors to make timely mortgage and rental payments nto question. The non-agency commercial mortgage-backed securities (#CMBS) market, which had previously been funding about one-fifth of CRE mortgage debt, stopped new securitizations toward the end of March. CRE loans that would normally be securitized have been accumulating on bank balance sheets."