NY Community Bancorp Flashes a $560 Billion Real Estate Warning for Banks

(Bloomberg) — The US commercial real estate market has been in turmoil since the onset of the Covid-19 pandemic. But New York Community Bancorp delivered a reminder that some lenders are only just beginning to see the pain.

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The bank’s decisions to slash its dividend and stockpile reserves sent its stock down a record 38% and dragged the KBW Regional Banking Index to its worst day since the collapse of Silicon Valley Bank last March. Japanese lender Aozora Bank Ltd. added to the property jitters by warning of a loss tied to investments in US commercial real estate, sending shares plunging in Asia trading.

The concern reflects the ongoing slide in commercial property values coupled with the difficulty predicting which specific loans might unravel. Setting that stage is a pandemic-induced shift to remote work and a rapid runup in interest rates, which have made it more expensive for strained borrowers to refinance. Billionaire investor Barry Sternlicht warned this week that the office market is headed for more than $1 trillion in losses.

For lenders, that means the prospect of more defaults as some landlords struggle to pay loans or simply walk away from buildings.

“This is a huge issue that the market has to reckon with,” said Harold Bordwin, a principal at Keen-Summit Capital Partners LLC in New York, which specializes in renegotiating distressed properties. “Banks’ balance sheets aren’t accounting for the fact that there’s lots of real estate on there that’s not going to pay off at maturity.”

Moody’s Investors Service said it’s reviewing whether to lower New York Community Bancorp’s credit rating to junk after Wednesday’s developments.

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Read More: NY Community Bancorp Plunges as Real Estate Risks Jolt Market

Banks are facing roughly $560 billion in commercial real estate maturities by the end of 2025, according to Trepp, representing more than half of the total property debt coming due over that period….