All right commercial real estate Developers are waiting for the Federal Reserve to potentially cut interest Rates later this month but it might not Be enough for the industry which has Really struggled since the pandemic Fed Chair Jerome Powell has said that Commercial real estate May face risk for Years as companies stick with remote Work and hybrid policies and joy Wilmouth joins us here on set in studio 57 she is a news editor and Senior Markets reporter for market watch uh so How big of an impact is the potential Cutting of interest rates really going To have on the commercial real estate Market it's probably just scratching the Surface because you have seen mortgage Rates start to come down already with The treasury yields coming down so Borrowers are getting some relief Already just in anticipation of those Rate Cuts coming um but we're still Talking about 6% sort of rates on a new Mortgage versus what they're trying to Refinance was closer to four in general So it helps a little bit but it does not Solve the problems and meantime haven't The fundamentals changed when it comes To the need for corporate real estate Post pandemic hybrid work is more Popular now it's not everywhere but some Folks are just not going back to the Office and I understand it isn't just
Like flipping a switch to turn a Corporate property into a residential One so what are the bigger barriers that Commercial real estate is up against so If we're talking about the office to um Residential conversion there's a huge Need for housing hous housing shortage In the United States and that's a bright Spot it's a potential what can you do With these older Office Buildings that Really don't function yes they can Function as an office building but the Economics probably don't work because They're not desirable or needed so There's been a big push at the federal Government level to unleash some funding And locally State and cities to do that It is really hard to do and there's Perhaps estimates out there that maybe Only 10% of the office building out There would sort of fit because we're Talking about buildings that were Constructed a long time ago it's very Hot um uh idea downtown Wall Street You've seen success there you've seen Developers do it and it's kind of a Template for other places but those Buildings are old and come even kind of Getting them at a a nice discount a very Steep discount the developers are still Figuring out the math on that if it Works to convert it the costs can get Enough rent once it's done it takes a Year it takes longer and um the funding
Aspect has to fit your business plan has To fit so this isn't going to be a quick Answer well joy I I want to ask you About this really quickly because There's a a potential storm brewing Because the Mortgage Bankers Association Says about $930 billion do in commercial Real estate loans are going to come due This year what happens if developers Can't pay back those loans well a lot of The Banks because a lot of that debt is Sitting at Banks the banks have been Trying to work with borrowers extend try To find a modification trying to get More equity in because we real estate Prices for commercial buildings multif Family office they have fallen so you're At a lower level of a value than when That mortgage that's coming due right They're underw they're under maybe not Underwater but they only have a little Bit of equity do I stick with it do I Not at this point that's what a lot of Developers are trying to Fig figure out So the banks are trying to work with the Borrowers the banks don't want those Properties back there's lenders out There saying I can do Gap financing There's a lot of creating thing creative Things they're trying to do but the fact Is it's not just almost a trillion this Year it's for the next four years each Year almost a trillion dollars coming Due Yik wow all right Joy wiltermuth
Thank you thank you for having me
