Most of Wall Street is panicking about commercial real estate – but Goldman Sachs says there's little chance it triggers a financial crisis
Hartnett believes that a wave of upcoming refinancings of commercial real estate loans at much higher interest rates than in the past could spark a credit crunch in the sector, sending stocks spiraling and the economy into a recession.
The collapse of Silicon Valley Bank and Signature last month could also further fuel the turmoil in commercial real estate – because rattled lenders looking to trim their balance sheets might become less willing to offer financing to property owners. While Karoui and Viswanathan are anticipating massive issues in the office sector – an area that other strategists have expressed concern about as well – they believe that apartments, manufacturing plants, warehouses, and other types of commercial real estate are better-capitalized and won't suffer a huge crash.
"We expect office loan delinquencies to materially increase, but think this is unlikely to lead to systemic risk given healthier fundamentals in other commercial real estate subsectors," the Goldman Sachs strategists said. The turmoil will likely be contained to office loan delinquencies"given healthier fundamentals in other commercial real estate sub-sectors such as apartment and industrial properties, as well as in other parts of credit markets," Karoui and Viswanathan added.
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