A brewing crisis

On Feb 15, Keppel Pacific Oak US REIT’s (KORE) manager announced it plans to suspend distributions. KORE share has seen fallen 42%. Since 31 Dec 2023, its down 61%. What is the crux of this catastrophe?

The issues that dogged KORE and Manulife US problems reveals a brewing systemic issue in US, and in Europe – real estate commercial loans. According to NBER (National Bureau of Economic Research):

  1. 14% of all commercial real estate loans, and 44% of office loans are under water.
  2. Up to 385 US banks could go bankrupt from commercial real estate risks.

You can read a report here : https://www.nasdaq.com/articles/will-the-u.s.-commercial-property-meltdown-lead-to-a-banking-crisis

My thoughts:

Last year was a bull year for the US market, even though it was hit by the collapse of Silicon Valley and First Republic banks.

The S&P500 broke record 5000 recently. With the Fed possibly pivoting, lots of investors sitting on T-Bills waiting on the sidelines, and 2024 being the 4th year presidential cycle which is usually lead to an up year, it may indeed be a good year for investors. However, it may be fraught with danger. But these perils may bring opportunities to us, especially if the market falls >20%.

  • I'm a remisier with Maybank Securities, and as a bonds and REITs investor myself, I guide my clients to build resilient bonds and REITs portfolios. If you like to be guided, please open a trading account to become my client; It's free!