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Treasury Secretary Janet Yellen, testifying before the House Financial Services Committee, said commercial real estate losses were a concern but that U.S. regulators were working to ensure loan loss reserves and liquidity levels in the financial system were adequate to cope. (AP Photo/Manuel Balce Senator)
Christopher Condon, Victoria Dendrinow | Bloomberg
Treasury Secretary Janet Yellen said the commercial real estate losses were a concern but that U.S. regulators were working to ensure loan loss reserves and liquidity levels in the financial system were adequate.
A confluence of factors “will put significant strain on these property owners,” Yellen told lawmakers on Tuesday, the first of two days of testimony this week. She cited rising interest rates, higher vacancy rates due to changing work patterns caused by the pandemic and a surge in commercial real estate loans coming due this year.
Also see: Commercial real estate downturn hits 10-year high
“I'm concerned,” she said in response to a question from Rep. Emanuel Cleaver, D-Missouri. “I think some agencies may be feeling quite stressed about this, but I believe it's manageable.”
Borrowing costs have soared, putting real estate owners under pressure and leading to defaults by companies such as Brookfield Corp. and a Newport Beach fund run by office property owners managed by Pimco.
Related: Pimco fund exits 20 hotels with $240 million in debt
Office landlords have been particularly hard hit, with rising borrowing costs complicating fundraising and tenants fleeing due to layoffs and an increase in remote work.
The Treasury Secretary said banking regulators were focusing on the issue and trying to determine whether lenders' reserves and liquidity were sufficient to address the problem.
More on real estate: US offices are half empty and this could be the next big risk for banks
Yellen appeared before the House Financial Services Committee on Tuesday and is scheduled to address the Senate Banking Committee on Thursday. Both appearances are intended to give lawmakers an opportunity to question the Financial Stability Oversight Council on its annual report.
–With assistance from Katanga Johnson.
Read more at the Orange County Register