US banks may lose $250 billion due to office sector collapse
US banks face the potential of losing up to $250 billion due to the decline in the office sector. Kyle Bass, the founder and chief investment officer of Hayman Capital Management, has highlighted the vulnerability of US banks heavily invested in the commercial real estate market.
Bass emphasised that the primary concern lies within the office space segment. Ongoing work-from-home and hybrid work trends have resulted in persistently low occupancy rates in office buildings.
During an interview with Bloomberg TV, Bass estimated that US banks’ exposure to business offices could result in losses of up to $250 billion, equivalent to approximately 10% of their total equity of $2 trillion.
“It’s evident that the office sector is facing substantial challenges,” Bass stated firmly.
Additionally, rising interest rates are negatively affecting the commercial real estate market, which could make it challenging for landlords to refinance their loans in the near future.
Over the past decade, most commercial real estate owners have benefited from nearly zero interest rates. However, higher interest rates and declining property values within the commercial real estate sector could double blow, potentially leading to bank financial losses as certain loans approach maturity.
Bass also pointed out that specific commercial real estate market segments, such as industrial real estate, multifamily housing, and data centre spaces, are expected to remain robust.
“Despite the rate hikes, the industrial sector performs exceptionally well. The AI revolution is fueling an insatiable demand for data centres. Multifamily housing remains a strong performer,” he explained.
Bass has previously advocated for the demolition of underperforming office buildings, as he believes that the trend of hybrid work is here to stay and that the conversion of office spaces into residential units presents significant challenges.
“In this particular asset class, a complete overhaul is necessary, which essentially translates to demolition,” he asserted in April.