US: Series of defaulted Bonds were mortgaged by Real Estate
The real estate market, both in the United States and Europe, is experiencing a crisis due to many defaults in the office rental and mortgage lending markets.
One of the recent defaults is from Brookfield Corp, the parent company of the largest office leasing company in Los Angeles. Brookfield made the difficult decision not to renew the refinancing of two buildings worth a combined $755 million. The default will increase the risk of the remaining loans in the portfolio.
Additionally, real estate management company Columbia Property Trust defaulted with more than $1.7 billion in debt mortgaged by seven buildings. The occupancy rate at these buildings has decreased, and the value has plummeted.
The Blackstone Private Equity Fund also recently declared default on a block of commercial mortgage-backed bonds. The investment giant has seen interest expenses on a Chicago property increase by about 300% in the last year but was refused when trying to negotiate with bondholders to extend payment terms.
The real estate market has been affected globally, with commercial property prices falling in Germany and retail property prices dropping by 8%. In Sweden, house prices have fallen by 13%, and in the United Kingdom, they have gone down by 5.7%. The Dutch also saw their house prices go down by 4.5%.
Many of the defaults and depreciating real estate values can be attributed to rising interest rates in countries like Europe. The central banks' decision to raise interest rates to tackle record high inflation has made high-risk bonds in the real estate sector in Europe more likely to default in the next two years, with some estimates reaching 8%. The real estate industry had previously increased debt through bond issuance.
In the United States, the Federal Reserve's monetary tightening campaign, which started in March 2022, has led to mortgage interest rates reaching their highest levels in two decades, at 7%/year. This increase, combined with high house prices, has caused the housing market to become increasingly gloomy. Home sales are at or below the level of the housing crisis in the 2000s, and it's predicted that home prices in the US will fall by 4% by the end of 2023.
The real estate market is experiencing a significant crisis due to many defaults, depreciation of property values, and rising interest rates. It's uncertain when the market will stabilize, but real estate businesses must be prepared to face these challenges and adapt to the changing landscape.
US: Series of defaulted Bonds were mortgaged by Real Estate
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