The collapse of the commercial RE sector is beginning to hit the banks, which so far claim to have sufficient reserves to cover their losses.  Given the fact that occupancy rates are down to about 50% and a couple of office towers were sold recently at 50% off firesale prices, I find this hard to believe.  Even covering 10% losses out of capital structure is enough to make a bank insolvent.  All they are covering here are losses on notes due this year, not taking the haircut on the full valu of the property, except in the cases where the full building is sold off, which isn't happening that much, relative to the total size of the market.   So while they can absorb the losses this year, without a magical rebound in the market next year,, they'll have to do it all over again.

This may in large part be the reason for the push by many CEOs for the return to the workplace and less work from home.  Work from home made many of those office spaces unnecessary.   Not only the banks take the loss on these properties, so do the lease holders.  If they don't get people back into those offices, they can't unload their leases.

This looks like a slow motion version of what happened to residential RE when the Adjustable Rate Mortgages reset 2006-7.  That took a few months to balloon up, this could take a couple of years.  Same general outcome though, the TBTF banks will need a bailout...again.  Problem is the interest rates are much higher now so printing funny money is much more expensive.

Don't be fooled by the headline, this isn't just a German bank problem.  As goes Deutchebank, so goes Credite Suisse and JP Morgan Chase.

https://www.cnn.com/2024/02/07/business/pbb-bad-loans-real-estate-crisis/index.html

German bank braces for wave of bad loans in 'greatest real estate crisis since the financial crisis'

RE