Growing fears in the commercial real estate sector in light of the banking collapse

There is a difference between the current fluctuations in the banking sector and the 2008 crisis related to the causes of problems in banks. In 2008, the banks' main weakness was substandard mortgage loans issued to insolvent borrowers. At present, however, the banks' problems are related to obligations that they cannot fulfill. For example, the withdrawal of deposits from Silicon Valley Bank and Signature Bank exposed weaknesses in asset management where banks were forced to sell assets to meet liquidity needs, resulting in real losses.

While there is no large or rotten asset class that could replicate the role that subprime played in 2008, there is one asset class that could play that role - commercial real estate. Commercial real estate is a huge market with over $5.6 trillion in outstanding loans, with over half of the total held by banks. The sector's rapid growth is worrying, with $725 billion invested in the sector since mid-2021, according to the Federal Reserve.