In recent days, the European Central Bank and analysts at Bank of America, JP Morgan and Morgan Stanley have indicated that the commercial real estate market could be the next flashpoint for the financial sector. Consequently, also for the stock market. With falling prices, weakening demand and record-breaking exposure to banks and investment funds in recent years, real estate may face bigger problems.
- According to an analysis by Morgan Stanley, more than $400 billion in debt from the U.S. commercial real estate market will collapse this year, with small and regional banks being the largest holders;
- The situation of the commercial real estate market on the Old Continent is not good either. The European Central Bank has warned that the real estate market poses a threat to financial stability on the continent. In the UK, commercial real estate prices are down 13% in 2022.
Among European banks, Scandinavian banks have the greatest exposure to the commercial real estate market through loans as a percentage of CET1 bonds. Denmark's Danske Bank (DANSKE.DK) and Sweden's Handelsbank (SHBA.SE) lead the way. Also high are Swedbank (SWEDA.SE), Nordea (NDA.DK) and large European banks ING (ING.NL), Deutsche Bank (DBK.DE), HSBC (HSBA.UK) and Societe Generale (GLE.FR).
Source: Bloomberg
Blackstone - the US problem indicator?
News of problems for commercial real estate players has been coming out of the US for quite some time. The nearly $20 trillion global market has been hit by the prospect of an economic slowdown, and recent macro data readings from the US have weakened the chances of a soft landing.
- New York-based alternative investment fund Blackstone (BX.US), led by Wall Street legendary manager Stephen Schwarzmann, in March once again blocked shareholder distributions from the largest U.S. $70 billion REIT it manages.
- Blacstone met the demands of only 15% of its clients and reprocessed $666 million in withdrawals against $4.5 billion in total investor demands in March alone. Since November, Blackstone's client demands have exceeded the fund's established 5% net asset value threshold. Total withdrawal requests in March were 15% higher than in February, but 16% lower than in January.
- The company explains to investors that the situation in the commercial real estate market is normalizing. Blackstone is the world's largest alternative investment fund but real estate is only part of its exposure to the market. Entities such as Simon Property Group (SPG.US) and Alexandria Real Estate Equities (ARE.US) have more direct exposure to commercial real estate.
Blackstone (BX.US) shares, D1 interval. The price has been in a downtrend since 2021, drawing lower and lower lows. It failed to rise above the SMA200 (red line) and fell again below the SMA100 (black line) signaling a possible test of the 61.8 Fibonacci retracement support of the upward wave initiated in March. If the bulls fail to stop the decline near $77, a test of the area around $66 is possible, which would confirm the preserved momentum of previous price reactions. Source: xStation5
