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 in law, finance and CRE sales spanning both the early-1990s S&L collapse and the 2008 Great Recession, Gottlieb noted that 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 ranked among the top office construction areas in America; however this has accelerated “the flight from conventional CBD,” leading many owners unable to service their debt or refinance into higher interest rates facing defaults on their buildings. Despite recent turbulence within banking sectors globally, banks’ liquidity remains greater than it was during 2008’s Great Recession – though first quarter reports will provide insight into financial health moving forward.
Gottlieb believes that banks won’t copy their 2008 playbook when addressing distressed borrowers or properties; instead they’ll take a proactive stance with modifications without usual ramifications due to OCC support during COVID’s onset – while avoiding “Extend & Pretend” tactics seen previously. Valuation is also difficult given current transaction volume levels but alternative lending sources offer increased competition for deals yielding greater recoveries for lenders compared with 15 years ago
