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A $560 Billion Property Warning Hits Banks From NY to Tokyo
New York Community Bancorp’s decisions to slash its dividend and stockpile reserves sent its stock down a record 38% on Wednesday, with the fallout dragging the shares to a 23-year low on Thursday. The selling bled overnight into Europe and Asia, where Tokyo-based Aozora plunged more than 20% after warning of US commercial-property losses and Frankfurt’s Deutsche Bank AG more than quadrupled its US real estate loss provisions.
The concern reflects the ongoing slide in commercial property values coupled with the difficulty predicting which loans might unravel. Setting that stage is a pandemic-induced shift to remote work and a rapid run-up in interest rates, which have made it more expensive for strained borrowers to refinance. Billionaire investor Barry Sternlicht warned this week that the office market is headed for more than $1 trillion in losses.
For lenders, that means the prospect of more defaults as some landlords struggle to pay loans or simply walk away from buildings.
“This is a huge issue that the market has to reckon with,” said Harold Bordwin, a principal at Keen-Summit Capital Partners LLC in New York, which specializes in renegotiating distressed properties. “Banks’ balance sheets aren’t accounting for the fact that there’s lots of real estate on there that’s not going to pay off at maturity.”
Moody’s Investors Service said it’s reviewing whether to lower New York Community Bancorp’s credit rating to junk after Wednesday’s developments.
Banks are facing roughly $560 billion in commercial real estate maturities by the end of 2025, according to commercial real estate data provider Trepp, representing more than half of the total property debt coming due over that period. Regional lenders in particular are more exposed to the industry, and stand to be hit harder than their larger peers because they lack the large credit card portfolios or investment-banking businesses that can insulate them.
While real estate troubles, particularly for offices, have been apparent in the nearly four years since the pandemic, the property market has in some ways been in limbo: Transactions have plunged because of uncertainty among both buyers and sellers over how much buildings are worth. Now, the need to address looming debt maturities — and the prospect of Federal Reserve interest-rate cuts — are expected to spark more deals that will bring clarity to just how much values have fallen.
While offices are a particular area of concern for real estate investors, the company’s largest real estate exposure comes from multifamily buildings, with the bank carrying about $37 billion in apartment loans. Nearly half of those loans are backed by rent-regulated buildings, making them vulnerable to New York state regulations passed in 2019 that strictly limit landlords’ ability to raise rents.
New China property financing measures set to be tested by banks' cautious approach
China aims to ramp up financing for home projects in the coming days as part of its support measures, but banks' reluctance to lend to the crisis-hit sector will remain a major obstacle for the distressed developers who need fresh funding the most.
Under the "project whitelist" mechanism, governments of 35 cities across the country are gearing up to recommend to banks residential projects that need financial support. Distressed developers are hoping the new mechanism will bring succor with some of their projects getting included in the whitelist.
The mechanism, which is designed to expedite issuance of project loans from banks, comes as Beijing steps up efforts to ease a liquidity squeeze in the sector and boost homebuyer confidence as new home prices in December saw steepest drop in nearly nine years.
But the success of the latest financing support measure could be stymied by banks' reluctance to extend fresh credit to the struggling real estate firms due to worries about the impact on their asset quality, developers, bankers and analysts say.
A corporate lending manager at a joint-stock bank said banks would prioritise risk controls under the new "Project Whitelist" mechanism rather than take "significant bad debts" onto their books.
The preferred residential projects on the whitelists to receive financing support are expected to be mostly those that are under development by state-owned enterprises, considered a safer bet due to their deep pockets, said the manager, who declined to be named as he is not authorised to speak to media.
Chinese banks' aversion to extending fresh credit to the ailing property sector comes as Evergrande's liquidation highlights foreign investor despair at China's debt levels and leaves developers locked out of global borrowing markets.
Real estate development loans in the world's second-largest economy grew 1.5% year-on-year to 12.88 trillion yuan ($1.8 trillion) at the end of 2023, versus 3.7% a year ago, data from the central bank showed.
Japan's government interest costs seen more than doubling over next decade -draft
Japan faces more than a two-fold increase in annual interest payments on government debt to 24.8 trillion yen ($169 billion) over the next decade, draft government estimates seen by Reuters showed on Friday.
The latest estimate, prepared by the Ministry of Finance for parliament ahead of debate on the government's budget bills, served as a reminder that the costs of financing debt could shoot up as the central bank leans toward exiting crisis-mode stimulus.
Years of the Bank of Japan's unconventional policy, such as negative interest rates, has kept borrowing costs ultra low, effectively bankrolling government debt.
However, interest payments on government debt are expected to jump to 24.8 trillion yen in fiscal 2033, which ends in March 2034, versus 9.83 trillion yen for the fiscal year ending in March 2025, the draft estimate showed.
Japan's public debt stands at more than twice the size of its economy, by far the worst among industrial world.
This week’s fun finds
I’m not the only one hopelessly devoted to the sit. American adults spend an average of 7.7 hours a day seated. Both prolonged sitting — extended, uninterrupted periods of time in a seat — and sedentary behaviors — tasks that expend extremely little energy, such as playing video games, watching television, using a computer, or reading a book — are linked to a number of negative health outcomes. Sedentary behavior increases your risk of diabetes, cardiovascular disease, and even early death. Sitting for long periods of time also ups your chances for blood clots, back and joint pain, weight gain, and cancer.
And regular physical activity does little to offset the negative impacts of prolonged sitting. Keith Diaz, an associate professor of behavioral medicine at Columbia University Medical Center, says, “The muscles, it’s great for them to be active and stimulated really heavily and really hard for 30 minutes or 60 minutes, whatever you do for your exercise. But eventually they stop doing their job again when you don’t use them.”
There is some good news, though: A 2023 study co-authored by Diaz found that just five minutes of light walking every half hour can help reduce some of these risks. There are also modifications for those with limited mobility or who use a wheelchair to get their movement breaks, experts say. In general, experts consider one hour to be the maximum amount of time people should spend sitting at any given time: In addition to the 150 minutes a week of moderate intensity physical activity recommended by the Physical Activity Guidelines for Americans, you should strive to get out of your seat at least once an hour to offset the negative effects of prolonged sitting. Here’s some expert-approved advice on how to do it.
Back-to-back Zoom meetings or highly engrossing media may keep you glued to your chair for hours at a time, sometimes without your noticing. In his 2023 study, Diaz found most participants simply forgot to stand. Many smartwatches and fitness trackers can display movement reminders, prompting users to get up after a certain length of time. If you don’t have one, [oncology physiotherapist Scott] Capozza recommends setting alarms or reminders on your phone for every 30 to 60 minutes or putting notes next to your computer screen reminding you to stand up.
Once you’re out of your seat, there are a number of low-effort movements you can try. Whether you work in an office or at home, you can take trips to fill up your water bottle or to go to the bathroom. If you can, try to use the water fountain that’s farthest away from your desk or a bathroom that’s on another floor, Capozza suggests. To make the best use of phone time, take a walk or unload the dishwasher while on calls. (A headset or wireless headphones will save your neck and help with hands-free chatting.) Commuters can park at the back of the parking lot or get off public transit a stop or two early and walk the rest of the way to work if time and weather allow.
During the times you are seated, proper alignment is crucial to avoid any neck or low back pain, Capozza says. Make sure your hips and pelvis are slightly above your knees. Your feet should be on the ground with equal weight distributed between both, meaning you don’t want one foot to be elevated on a stool or ledge. Make sure to keep your weight balanced between your pelvis and your feet to take pressure off your back. “You don’t want to be too far back in your chair so that more of your weight is on your pelvis and your hips,” Capozza says, “but you don’t want to be too far forward in your chair so that more and more weight is on your feet.”
