Chicago and the Midwest are likely to experience commercial real estate distress as 2023 progresses, according to real estate attorney David M. Gottlieb of GottsLaw LLC in Northfield, IL. With a three-decade career spanning both the early-1990s S&L collapse and the 2008 Great Recession, Gottlieb said bankers have expressed particular concern for office sector properties due to COVID’s hybrid work schedules and rapid interest rate increases.
The Fulton Market District is among top U.S areas for office construction; however this has accelerated “the flight from conventional CBD,” leading to decreased rental income combined with increasing expenses such as property tax that could lower owners’ ability to service their debt or refinance into a higher interest rate environment – resulting in more building defaults.
Though banks’ liquidity is greater now compared with 15 years ago during the onset of The Great Recession, first quarter reports will provide insight into financial health including anticipated losses and reserves set aside accordingly – along with Texas Ratio analysis which can identify institutions most at risk of failure.. Banks won’t copy their 2008 playbook when it comes addressing distressed borrowers or properties either; they are expected take proactive approaches instead avoiding ‘Extend & Pretend’.
Additionally there has been an evolution of alternative lending sources since then providing equity, debt and hybrid alternatives that could yield better recoveries for current lenders than before due increased competition on deals . However one challenge remains: valuing properties given lack recent comparative sales data .
Overall it appears Chicago specifically ,and Midwest generally ,are likely face CRE distress over next few years amid changing workplace dynamics brought about by pandemic while banking sector looks closely at its own financial health through quarterly reports .
