Building owners that borrowed money to finance their properties are being squeezed by high interest rates and vacant offices as workers opt to work from home. Weak demand for offices could trigger a wave of borrowers to default on their loans and put pressure on banks and other lenders, which are hoping to avoid selling loans at significant discounts.
"This is going to go on for at least a year, where NPLs continue to rise, followed by charge-offs - it's going to be really ugly," said Rebel Cole, a finance professor at Florida Atlantic University. Small banks hold 4.4 times more exposure to CRE loans than their larger peers, JPMorgan found earlier this year. Citigroup found that regional or smaller lenders hold 70% of CRE loans.
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