$1.2 Trillion of Commercial Real Estate Debt Faces Rising Default Risks​​​

About $1.2 trillion of debt on U.S. commercial real estate is “potentially troubled” because it’s highly leveraged and property values are falling, according to Newmark Group Inc., Bloomberg News reported. Offices are the biggest near-term problem, accounting for more than half of the $626 billion of at-risk debt that’s set to mature by the end of 2025, the brokerage estimates. Office values have tumbled 31% from a peak in March 2022, when the Federal Reserve started raising interest rates, according to property analytics firm Green Street. Concerns are mounting that defaults will increase as property values fall and costs rise for landlords who need to refinance at higher interest rates. Overleveraged owners are often more motivated to stop payments than sink money into buildings with diminished prospects for returns. Blackstone Inc., Brookfield Corp. and Goldman Sachs Group Inc. are among investors that have defaulted or relinquished offices to lenders this year. Read more.

Commercial real estate continues to be the sector to watch for restructuring professionals, as decreasing property values and increasing interest rates will be colliding with massive debt maturities over the next four years. A special abiLIVE webinar on Wednesday will feature experts providing a clear and comprehensive understanding of where the market stands and may be going as we head into the last four months of the year. Register for FREE!

Office Tenants Are Renewing Leases — but for Far Less Space​​​

The good news for office landlords is that lease signings have been increasing this year. The bad news is that the average new lease is considerably smaller than before. That means companies are committing to spending less on office space for years to come, according to a Wall Street Journal analysis. The need for less workplace space reflects how employers across the U.S. have embraced—or at least have come to tolerate—hybrid strategies that allow employees to work more from home. Consequently, firms feel they need less space and are signing deals of up to 15 years for fewer office floors. In the second quarter, U.S. businesses signed new leases for an estimated 97.5 million square feet, up from 57.4 million square feet in the second quarter of 2020, the low point of the pandemic, according to data firm CoStar Group. Yet in the second quarter, the average U.S. office lease size was 3,275 square feet, or 19% less than the average lease size between 2015 and 2019, CoStar said. (Subscription required.) Read more.

Study: Americans Will Likely Run Out of Excess Pandemic Savings This Quarter​​​

Americans will likely deplete the rest of the excess savings they accumulated during the pandemic this quarter, according to a new study from the Federal Reserve Bank of San Francisco, The Hill reported. After rapidly accumulating “unprecedented” levels of excess savings during the pandemic, the San Francisco Fed estimates that American households are holding less than $190 billion in aggregate excess savings as of June. Excess savings peaked at $2.1 trillion in August 2021, far exceeding the projected trend line from before the pandemic. However, American households began to pull from these excess savings more rapidly starting in 2022, averaging about $100 billion per month in drawdowns and totaling $1.9 trillion as of this June, according to the study. If drawdowns continue at the same pace, excess savings will likely be depleted in the third quarter of 2023, which ends in September, the San Francisco Fed found. Read more.

America's Retailers and Restaurants Brace for a Shock as Student Loan Payments Resume​​​

Some of America's biggest retail and food chains have been preparing investors for a slowdown in consumer spending as the more than three-year pause in student loan payments comes to an end, YahooFinance.com reported. Student loans, along with other forms of consumer debt, are going to "come into focus in the next month or two," Macy's CFO Adrian Mitchell said on Tuesday. "So we just believe that the customer is coming under pressure because these are new realities that they have to continue to deal with as we get through the back half of this year and move into next year." A similar warning came this month from the world's largest retailer, Walmart. "Jobs, wages, and pockets of disinflation are helping our customers. But rising energy prices, resuming student loan payments, higher borrowing costs and tightening lending standards, and a drawdown in excess savings mean that household budgets are still under pressure," Walmart CEO Doug McMillon told Wall Street when the retailer reported earnings. Federal student loans will begin to accrue interest again on Sept. 1, with payments resuming on Oct. 1. TransUnion's head of global research and consulting Charlie Wise tells Yahoo Finance that roughly 40 million consumers will face "payment shock" when their student debt relief ends. Consumers have already been having trouble paying off credit card debt, as Macy's warned this week. Now, the return of student loan payments could make financial matters worse, with execs warning that the extra expense may lead consumers to pull back spending in other areas. Read more.

U.S. Jobless Claims Fall as Labor Market Remains Tight​​​

The number of Americans filing new claims for unemployment benefits fell last week, as labor market conditions remained tight despite the Federal Reserve's aggressive interest rate hikes, Reuters reported. Initial claims for state unemployment benefits decreased by 10,000 to a seasonally adjusted 230,000 for the week ended Aug. 19, the Labor Department said today. The previous week's level was revised up modestly by 1,000. The number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased 9,000 to 1.702 million during the week ending Aug. 12, the claims report showed. These so-called continuing claims remain low by historical standards, indicating that some laid-off workers are experiencing short spells of unemployment. Read more.

Average Long-Term U.S. Mortgage Rate Jumps to 7.23% This Week to Highest Level Since June 2001​​​

The average long-term U.S. mortgage rate climbed above 7% this week to its highest level since 2001, another blow to prospective homebuyers grappling with rising home prices and a stubbornly low supply of properties on the market, the Associated Press reported. Mortgage-buyer Freddie Mac said today that the average rate on the benchmark 30-year home loan jumped to 7.23% from 7.09% last week. A year ago, the rate averaged 5.55%. It’s the fifth consecutive weekly increase for the average rate, which is now at its highest level since early June 2001, when it averaged 7.24%. Back then, the median sales price of a previously occupied U.S. home was $157,500. As of last month, it was $406,700. The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, also rose to 6.55% from 6.46% last week. A year ago, it averaged 4.85%, Freddie Mac said. Read more.

Experts Discuss Potential Ramifications of Supreme Court's Coughlin Decision on Latest ABI Podcast​​​

ABI Editor-at-Large Bill Rochelle discusses the Supreme Court's opinion in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin with Prof. Jack F. Williams of Georgia State University College of Law (Atlanta) and Thomas Salerno of Stinson LLP (Phoenix). The Court held that the Bankruptcy Code unequivocally abrogates the sovereign immunity of all governments, including federally recognized Indian tribes. Click here to listen.

Nomination Period Closing Soon for ABI’s International Matter of the Year Award​​​

ABI’s International Committee is accepting nominations for its Second Annual ABI International Matter of the Year Award. For criteria, eligibility and other information on the award, please click here.

Public Notice for Reappointment of Bankruptcy Judge Mildred Cabán​​​

The current term of office of Hon. Mildred Cabán, U.S. Bankruptcy Judge for the District of Puerto Rico, is due to expire on March 16, 2024. The U.S. Court of Appeals for the First Circuit is considering reappointment of Judge Cabán to a new term of office and has determined that she appears to merit reappointment subject to public notice and opportunity for public comment. Members of the bar and the public are invited to submit comments for consideration by the court of appeals regarding the reappointment of Bankruptcy Judge Cabán to a new term of office. All comments will be kept confidential and may be submitted via U.S. Mail to Susan J. Goldberg, Circuit Executive, John Joseph Moakley United States Courthouse, 1 Courthouse Way, Suite 3700, Boston, Massachusetts 02210, or in the form of a PDF letter attached to an email to Susan_Goldberg@ca1.uscourts.gov. The circuit executive will then submit the comments to the court of appeals for its decision. Comments must be received no later than Friday, September 8, 2023. 

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