This week, commercial real estate was a prominent focus of the Federal Reserve’s quarterly senior loan officer opinion survey and announcement about the hypothetical scenarios that 23 banks will be stress-tested against in 2023. (Fed Survey, Feb. 6 and Stress Test, Feb. 9)

2022 Survey & 2023 Stress Test

• On Monday, the Fed released its January 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices, which reported tighter standards and weaker demand for all commercial real estate loan categories for the fourth quarter of 2022. The survey also reported that for 2023, banks expect lending standards will tighten, demand will weaken, and loan quality will deteriorate across all loan types. (Reuters, Feb. 6 | American Banker, Feb. 7 | GlobeSt, Feb. 9)
  
  
• On Thursday, the Fed released the hypothetical scenarios for its 2023 annual stress test, which measures and evaluates the ability of large banks to continue lending to businesses and households during a recession or weakened financial conditions.
  
  
• The scenarios will include a severe global recession, heightened stress in both commercial and residential real estate markets, and a new, unspecified "exploratory market shock." The new component will not count against capital requirements affected by the tests, the Fed said. (BGov, Feb. 10)
  
  
• The Fed detailed additional key features of the “severely adverse scenario” by instructing banks, “Declines in commercial real estate prices should be assumed to be concentrated in properties most at risk of a sustained drop in income and asset values: offices that may be affected by remote work or hospitality sectors that continue to be affected by reduced business travel. Declines in U.S. house prices and U.S. commercial real estate prices should also be assumed to be representative of … those that experienced rapid price gains before the pandemic and were significantly affected by the event.” (pdf of instructions for 2023 Federal Reserve Stress Test Scenarios)

Delinquency Rate & CRE Outlook

• Trepp’s CMBS Research reported this week that that the overall US CMBS special servicing rate dropped in January 2023 six basis points to 5.11%—down for the second month in a row after four consecutive increases from August to November. By comparison, the rate one year ago was 6.33% and six months registered at 4.79%. (Trepp, Feb. 8)
  
  
• The office sector saw a 16-basis point increase in the special servicing rate in January, and it led all new special servicing transfers.
  
  
• An industry panel discussion on Feb. 6 focused on Cutting Through Uncertainty: 2023 Economic & CRE Outlook. The on-demand webinar is moderated by Roundtable Member Hessam Nadji (President & CEO, Marcus & Millichap), who leads a discussion with Moody’s Analytics Chief Economist Mark Zandy, along with Roundtable Members Wendy Mann (CEO, CREW Network), Tom McGee (President and CEO, ICSC) and Marc Selvitelli (President & CEO, NAIOP).

This month, The Real Estate Roundtable will release its Q1 Economic Sentiment Survey, which will report on how leading CRE executives view current market conditions and their expectations for the year.

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