The Real Estate Roundtable has reported that the Financial Stability Oversight Council (FSOC) has identified commercial real estate as a significant financial risk to the U.S. economy in 2024. According to FSOC’s 2023 Annual Report, there are nearly $6 trillion of outstanding commercial real estate loans, with approximately half held by U.S. banks. The report expresses concerns about a large number of these loans maturing in the next few years.
In light of elevated interest rates and high costs, as well as potential changes in demand for CRE, FSOC states that there is cause for concern regarding this sector. With expiring leases and weak demand for office space adding further strain on conditions within the office segment of CRE market.
Clifton E.Rodgers Jr., Senior Vice President at Roundtable wrote an op-ed piece for Urban Land Institute stating “To address these maturing loans effectively, it is crucial to implement measures that will encourage additional capital formation.” He also emphasized on bringing more foreign investment into U.S.real estate by removing legal barriers and reforming outdated laws such as Foreign Investment in Real Property Tax Act (FIRPTA). Additionally,policymakers must avoid increasing tax rates on capital gains or altering provisions like carried interest or 1031 like-kind exchanges which could have negative impacts.
This article highlights how FSOC views outstanding CRE loans as a major risk factor affecting the overall stability of US economy.The post originally appeared on ConnectCRE but we have rephrased it without mentioning any specific platform names.
