Morgan Stanley Global Macro ForumNavigating the Commercial Real Estate LandscapeFebruary 12, 2024Vishwanath Tirupattur – Chief Fixed Income Strategist | StrategistManan Gosalia – US Midcap Banks Analyst | Equity AnalystRonald Kamdem – Head of US REITs and CRE Research | Equity AnalystJames Egan – Co-Head of Securitized Products Strategy | StrategistVishwas Patkar – Head of US Credit Strategy | Strategist MORGAN STANLEY & CO. LLCVishwanath Tirupattur, James Egan and Vishwas Patkar are fixed income analysts and are not opining on equity securities. Their views are clearly delineated.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.Morgan Stanley ResearchGlobalFebruary 12, 2024 12:32 PM GMTManan GosaliaUS Midcap Banks Analyst3Commercial Real Estate Exposure Is More Heavily Concentrated at the Regional BanksSource: Federal Reserve Board - Assets and Liabilities of Commercial Banks in the United States - H.8 - February 9, 202401,0002,0003,0004,0005,0006,0007,000Large BanksRegional BanksLoans $BCRE as % of Total LoansC&IResiConsumerOtherCRE44%13%4We Expect CRE Loan Losses to Rise Further Before Plateauing at a Higher Level, and We Expect Losses to Take Several Years to Work ThroughSource: SNL Financial, call reports, Morgan Stanley Research forecasts -0.25%0.00%0.25%0.50%0.75%1.00%1.25%1.50%1.75%2.00%2.25%2.50%Median CRE NCO Ratio Over TimeForecast5Banks with a Higher Exposure to CRE Loans Tend to Have Lower CRE Loan Loss Reserves, a Risk to Earnings at Regional Banks in the Coming QuartersSource: Company data, Morgan Stanley Research; Note: Data as of 4Q23. Data sourced from banks’ call reports. Includes reserves on construction & development loans. Ronald KamdemHead of US REITs and CRE ResearchSource: Real Capital Analytics, Morgan Stanley ResearchCRE Property Prices50.00100.00150.00200.00250.00300.00Dec-00Dec-01Dec-02Dec-03Dec-04Dec-05Dec-06Dec-07Dec-08Dec-09Dec-10Dec-11Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21Dec-22Dec-23CRE Property PricesApartmentRetailIndustrialOffice - CBDOffice - SuburbanSource: MBA, Morgan Stanley ResearchUS$660 Billion CRE Debt Maturing in 2024: 18% Office and 39% Multifamily01002003004005006007008002023202420252026202720282029203020312032LaterMaturities ($bn)MultifamilyOfficeIndustrial/WarehouseRetailHotel/MotelHealthcareOtherSource: Real Capital Analytics, Morgan Stanley ResearchDistress Sales Rose to 2.0% of Total Sales2.0%0.0%5.0%10.0%15.0%20.0%25.0%$0.0$2.0$4.0$6.0$8.0$10.0$12.0$14.0'07'08'09'10'11'12'13'14'15'16'17'18'19'20'21'22'23BillionsDistress Sales ...
