Already a subscriber?That doughty — somewhat dull — Canadian insurance company known as Manulife does not often attract attention. This week, however, it caused a frisson in the real estate world.
At first glance, that looks scary; 40 per cent is a big number. But in reality investors should celebrate. One bit of good news is that Manulife has relatively deep pockets, and thus can absorb this blow. The second, more important, point is that Manulife’s move shows that some players are finally getting more honest about America’s commercial real estate pain.
The answer matters because the financial system is currently beset by a tottering pile of cheap CRE loans. Research from Newmark last year suggests over half of this emanated from banks; regional banks were particularly frenetic lenders when the Fed made money almost free during COVID-19. But what is striking is not that some flashpoints have emerged, but how little pain has been crystallised so far. That is partly because capital market lenders are rolling over bad loans: Newmark recently told clients that “out of an estimated $US163bn in 2023 CMBS maturities , $US83.3 billion remain outstanding” — ie borrowers have exercised “extension options”.
But the problem is that as long as these “pretend and extend” tactics are playing out, uncertainty will haunt the property sector, threatening to undermine American growth.