OPI - Banks may be pressured by weakening commercial property market Yellen warns

2023-06-08 04:12:24 ET

Treasury Secretary Janet Yellen in a CNBC interview cautioned that U.S. banks could be pressured by the weakening commercial real estate market and are likely preparing for difficulties ahead.

"I do think there will be issues with respect to commercial real estate," Yellen said on CNBC's 'Squawk Box'. "Demand for office space since we've seen such a big change in attitudes toward remote work has changed and especially in an environment of higher interest rates."

However, Yellen believes banks should be able to handle the pressure despite near-term pain. "I think banks are broadly preparing for some restructuring and difficulties going ahead," she said, adding that stress tests of big banks show they have enough capital to weather any commercial property fallout.

Yellen said banking supervisors are monitoring lenders to ensure they are prepared for any fallout. She also said some smaller banks could consolidate amid earnings pressure.

Last month, Berkshire Hathaway ( BRK.A ) ( BRK.B ) Vice Chairman Charlie Munger sounded the alarm on the sector, given banks' "bad" commercial property loan portfolios.

Fitch Ratings cut its U.S. REIT sector outlook to 'Deteriorating' to reflect further tightening of commercial property lending conditions, as well as ongoing pressure from higher interest rates and macroeconomic headwinds.

Office REITs: ( BXP ), ( ARE ), ( SLG ), ( OFC ), ( CIO ), ( VNO ), ( KRC ), ( DEI ), ( CUZ ), ( HIW ), ( JBGS ), ( HPP ), ( BDN ), ( PGRE ), ( PDM ), ( AAT ), ( ESRT ), ( EQC ), ( DEA ), ( OPI ), ( ALX ), ( AHH ), ( FSP ), ( CMCT )

More on commercial real estate

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• Commercial Real Estate: Going Granular

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