Commercial real estate is feeling the pain of higher rates and tighter credit conditions.
Blackstone reported big losses in the past quarter, and Brookfield reportedly defaulted on some office loans.
Experts have warned that commercial property is the next shoe to drop after March’s bank failures.
The commercial real estate market is showing signs of weakening, demonstrated by the pressures being felt by two of the market’s largest players amid higher rates and tighter financial conditions.
Blackstone, the largest owner of commercial real estate in the world, saw a major decline in distributable earnings as the demand for commercial real estate properties faltered in the last year. According to the asset manager’s latest financials, profits from the sale of assets fell to $4.4 billion over the last quarter, down 54% from $9.5 billion it cashed in during the first quarter of last year.
Meanwhile, another real estate giant, Brookfield Corporation, defaulted on $161 million in commercial real estate debt tied to office properties, Bloomberg reported last week. A few months earlier, in February, Brookfield defaulted on $784 million of commercial real estate debt backed by two big office towers in Los Angeles.
The struggles of two of the largest real estate firms paint a picture of a market pressured by a year of rising interest rates and a recent credit crunch sparked by tighter lending conditions as banks pull back after the turmoil in March.
Meanwhile, commercial property owners are refinancing maturing commercial mortgages at much higher rates than when they were originated a few years ago.
The effects have been compounded by by tighter lending among small- and mid-sized regional banks, which finance around 80% of all commercial real estate debt. In total, there is about $1.5 trillion of commercial mortgage debt approaching maturity that will need to be refinanced in the coming years.
While office demand has faltered as work-from-home trends persist, other areas of the market have also been showing signs of stress. Apartment building sales, for instance, just posted their largest drop since 2009, according to data from CoStar Group.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
