(Daily Caller)—The commercial real estate sector is facing the possibility of a substantial number of bankruptcies that could ultimately hamper economic recovery and threaten the wounded banking industry, according to experts who spoke to the Daily Caller News Foundation.
Overall 30 day+ delinquencies on commercial mortgage-backed securities (CMBS), meaning the number of borrowers for commercial properties that failed to make a required payment in at least the last 30 days, increased from 2.96% from one year ago to 4.63% as of October, according to a report from market research group Trepp. The delinquencies are indicative of danger in the commercial real estate sector, as they indicate that many of those could become bankruptcies, threatening an already hurting banking industry and exacerbating any economic downturn, according to experts who spoke to the DCNF.
“Commercial real estate is in deep trouble and could constitute a major risk to the banking system and the recovery,” Desmond Lachman, a senior fellow at the American Enterprise Institute, told the DCNF. “In fact, I would characterize the situation as a slow-moving train wreck. The underlying problem is that occupancy rates have slumped post-Covid since many workers are now working at least part of the time from home.”
Vacancy rates for offices have continued to trend up since the COVID-19 pandemic, which forced many businesses to adopt remote work to continue operations — a change many workers have been reluctant to let go of, according to a report from Cushman & Wakefield. In 2019, the vacancy rate hovered around 13% and has increased to around 20% as of the third quarter of 2023.
“The pandemic was an aggravating force that gave the shift from brick-and-mortar to laptop purchasing critical mass 20 years after it began,” Peter Earle, an economist at the American Institute for Economic Research, told the DCNF. “People, even (and especially) those who were suspicious of internet retail or liked the in-person shopping experience, were forced to move their consumption online during lockdowns and under stay-at-home orders. Many of them liked it, came to trust it, and now see little reason to go back to physical establishments.”
Delinquency rates for offices have seen the largest jump among commercial real estate, rising from 1.75% on 30 day+ delinquencies last year to 5.75% as of October 2023, according to Trepp. Industrial property delinquencies increased from 0.43% to 2.56%, and multifamily property delinquencies increased from 0.85% to 2.64% over that same time frame.
Retail delinquencies over the past year have managed to remain mostly stable as they are not hampered by factors like an increasing number of remote workers, according to Trepp. Despite being stable, delinquency rates for retail measured 6.55% in October 2023, lower than one year ago when it was 6.66%, but still greater than any other category in commercial real estate.
“To the extent that a commercial real estate slump creates job losses among staffers and maintenance people, a recession will be exacerbated by bankruptcies or liquidations,” Earle told the DCNF. “The longer-term effects, which would include canceling planned construction or freezing existing projects, would impact the building and materials industries as well. Further negative impacts could materialize if regional banks, which have lent substantial amounts to commercial real estate builders and owners over the past decade or two, find themselves mired in rising loan defaults.”
U.S. banks outside of the top 25 in assets hold around 37.6% of all loans but hold an astonishing 67.2% of all commercial real estate loans as of March, according to Axios. As of the last quarter of 2022, 40% of loan officers were tightening their lending standards in the commercial real estate sector as the industry becomes a riskier bet.
Small and medium-sized banks have been the cause of concern for some following a banking crisis at the beginning of 2023. Silicon Valley Bank collapsed after a bank run in March, with Signature Bank and First Republic Bank following suit, leaving many regional banks to struggle as depositors fled to larger banks that they believed would be a safer bet.
WeWork's $47 billion collapse could be the straw that breaks regional banks.
It could put nearly 600 commercial leases on the block, sticking the landlords — and their banks — with the bill.
Commercial real estate accounts for 30% of regional bank loans — roughly $300 billion.… pic.twitter.com/jxXlDQp6qK
— Peter St Onge, Ph.D. (@profstonge) November 17, 2023
“All of this is particularly bad news for the regional banks since as much as 18% of loans are made to this sector,” Lachman told the DCNF. “If the regional banks have to restrict lending because they are having large loan losses, this could spell trouble for the small and mid-sized companies that are hugely reliant on the regional banks for their credit. And those small and mid-sized companies account for close to half of overall employment.”
The Federal Reserve has raised its federal funds rate to a range of 5.25% and 5.50%, the highest rate in 22 years, after a series of 11 hikes that began in March 2022 in an effort to combat inflation. Inflation peaked at 9.1% in June 2022 and has since decelerated to 3.2% in October, far higher than the Fed’s 2% target.
Amid fears about the struggling industry, lending for commercial and multifamily mortgages dropped 49% year-over-year in the third quarter of 2023, according to Market Insider. The slowdown could be increasingly felt by the broader economy over the next few years, with around $1.5 trillion in debt needing to be paid back as the possibility for defaults increases.
“I think that the commercial real estate sector is a major risk to the economic recovery and that the Fed and the markets do not seem to be paying sufficient attention to this matter,” Lachman told the DCNF.
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Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.