Sales of commercial real estate in the U.S. fell by 56% at the beginning of 2023.

As is known, the total amount of commercial and combined mortgage debt stands at $4.5 trillion. Analysis for the first quarter showed that the U.S. commercial real estate market is facing an unprecedented period of transformation. Changes in the fundamental characteristics of properties, interest rates, property values, and other factors have led to a noticeable slowdown in transactional activity - sales volume in the first quarter of 2023 decreased by 56 percent compared to the previous year. The MBA survey for the first quarter also indicated that the delinquency rate for office property mortgages increased by 110 basis points. Data from the Board's Senior Loan Officer Opinion Survey (from January - with a recent focus on banks) showed that 58 percent of respondents tightened their standards for commercial loan issuance, and 57 percent specifically for multifamily loans.

There is no doubt that the commercial real estate markets are undergoing a period of change. However, recently two questions have been drawing particular attention in the headlines about commercial real estate: a) the dependence of banks on commercial real estate and b) the dependence of commercial real estate on banks.

Of the total $4.5 trillion in commercial and combined mortgage debt, multifamily homes account for nearly half - $2 trillion, followed by office properties at $750 billion or 17 percent of the total. According to MBA estimates, of the $750 billion in office-backed mortgages, approximately $339 billion is held by banks. This represents 45 percent of all office-backed loans, 20 percent of the total volume of bank and combined mortgage loans, and 8 percent of all commercial and combined mortgage loans. Of the $339 billion in office-backed loans held by banks, $98 billion will reach maturity in 2023. This accounts for 29 percent of all office loans in banks, 13 percent of all office-backed loans, 6 percent of the total volume of bank and combined mortgage loans, and 2 percent of the total volume of commercial and combined mortgage loans.

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