By Peter Grant | The Wall Street Journal
Commercial real-estate lending is shrinking to historically low levels, threatening a rise in defaults on expiring debt and a sharp decline in new construction of warehouses, apartments and other property types.
Banks, insurance companies and other commercial property lenders have been cutting back since the first half of 2022 when the Federal Reserve began increasing interest rates and recession concerns intensified. But creditors have been even more reluctant to make new loans as Treasury bond yields have soared since early August.
Most commercial real-estate loans are tied to short rates, not long-term rates. The rise in Treasury rates, however, unnerved already-skittish lenders and cast new doubt on whether a range of property types were overvalued.
Total volume of commercial real-estate loans held by banks, the largest source of debt financing, declined during the first two weeks of October, according to analysis of Federal Reserve figures by Trepp, a data provider. Bank commercial property lending has declined for only two months since 2014. Most other two-week periods since 2014 have shown positive growth.
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