Is working from home about to spark a financial crisis?

livemint.com:

Blackstone, an investment firm, bought for $605m in 2014—only to default on its mortgage in 2022. Soaring above Grand Central station is the iconic Helmsley building. Its mortgage was recently sent to “special servicing" (it may be restructured or its owner may simply default).

As the sun sets, the underlying problem becomes clear: working from home means fewer tenants. Floors bright with lights, where workers potter about, sit sandwiched between swathes of black. This is not a new development.

Many buildings have stood empty since covid-19 struck. At first, owners hoped to wait out the pandemic, but workers were slow to return, so employers ended up downsizing. Vacancy rates, especially in shabbier buildings, rocketed.

Then interest rates rose. Most commercial buildings are financed via five- or ten-year loans. And many of these loans will be refinanced shortly, while rates remain painfully high.

Some $1trn in American commercial-property loans will roll over in the next two years, an amount that represents a fifth of the total debt owed on commercial buildings. Recently a number of office buildings in big cities have traded at less than half their pre-pandemic prices. These sorts of losses will wipe out many owners’ equity, leaving banks to swallow hefty losses of their own.

Indeed, three institutions have already been hit hard. In recent weeks New York Community Bank (NYCB), a midsized lender; Aozora Bank, a Japanese institution that hoovered up American commercial-property loans; and Deutsche Pfandbrief, a German outfit with exposure to offices, all reported bad news about their loan books and saw their shares plummet. Meanwhile, China’s property crisis is becoming more acute.