Hundreds of US office building mortgages are due to be repaid or refinanced in 2024. Many owners of these mortgages will have huge difficulties in meeting obligations. The resulting implosion from this bad debt can have widespread repercussions for banks.
Mortgage loans become due
According to an article in the Financial Times on Monday, $117 billion in mortgage loans tied to commercial real estate will have to either be repaid or refinanced in 2024.
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Most of these loans were taken out years ago at a time when interest rates were very low. However, a combination of accelerated rate rises, together with badly performing return on commercial real estate has meant that many billions of dollars could be lost in the course of this year.
With experts on the situation saying that refinancing deals will be extremely difficult to arrange, the FT article quoted an expert as stating that “even sophisticated borrowers are calling it a day and asking their lenders whether they would like to take the keys.”
Smaller banks are the most exposed
Around two thirds of the mortgages that are due this year are held by banks. A lot of these banks are the small and medium sized banks that will have real difficulties with staying afloat given the large exposure some of them have to commercial property mortgages.
Therefore, it is to be wondered whether the smaller banks that do eventually go to the wall will be parcelled up and given to the likes of the ‘too big to fail’ banks such as Jamie Dimon’s JP Morgan?
Real estate - the infallible asset?
For so many years real estate was considered the infallible asset that would always climb higher no matter what was happening in the economy. Banks became too comfortable with raking in the profits, and now they are going to have to pay.
Be that as it may, it’s not just the banks who will suffer here. Individual investors have exposure, and more importantly for the wider community, pension funds are also exposed.
This is yet another example of the kind of bad decisions made by the banking industry and is yet another element of the unstable monetary system that affects us all. Banks, bonds, and now commercial real estate are investments that are failing.
Gold and bitcoin provide haven
Among this maelstrom of debt and currency failure there are still a couple of assets that can offer security, and that is gold and bitcoin. Gold, because it is real money, although heavily manipulated in price, and bitcoin, because it is also real money, and is still outside the monetary system (although with Blackrock and co waiting in the wings for a Spot Bitcoin ETF, perhaps the manipulation might begin).
With the US and other major economies looking as though they are heading for recession in 2024, investors will need to be even wiser than usual. Educating oneself on the pros and cons of holding currency in the bank or putting it into bitcoin would be an extremely wise move.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
