Banks aren't the only ones that hold risky commercial-real-estate debt. Pension funds are about to feel the pain, too.
But while banks hold about half of all US commercial-real-estate debt, there are other big holders that are starting to feel the pain, especially over holdings of office properties suffering from the rise of remote or hybrid work schedules. Among them are the large pension funds, REITs, and insurance companies, together accounting for more than $1.2 trillion — or 22% — of the $5.62 trillion in total commercial-real-estate debt outstanding, according to BofA Global Research.
"This is just an indication of what's to come," said Manus Clancy, a senior managing director at Trepp, a commercial-real-estate-data firm, said about the pension woes on the"This is the beginning of what will be a lot of this from the funds, from the private equity guys, from the insurance companies," Clancy said."There will be a lot of reductions in equity values over the next couple of years, or sooner. It will be heavily tilted toward office.
Some pension funds were already planning to reduce their exposures to commercial real estate even before the recent bank failures magnified the risks. CalSTRS reported double-digit returns over a 10-year period, making it a top performing asset class, according to the FT.
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