JPMorgan Warns Against Commercial Real Estate Debt

As global economic uncertainty reigns supreme, JPMorgan Chase has a warning for investors: avoid commercial real estate debt.

On Tuesday, the financial institution advised investors against CRE debt, Crain’s reported. A report by the bank stated that a “lagging performance is now more likely,” adding that it was factoring in a “base-case recession.” Similarly, chief executive Jamie Dimon said on Wednesday that a recession had become the most likely outcome for the economy.

JPMorgan downgraded its recommendation on real estate investment trust credit from “neutral” to “underweight.”

Risks are significant for landlords in the industrial sector, JPMorgan stated, noting how the flow of goods could be impacted by a trade war. Warehouses and last-mile facilities have been strong performers in New York and beyond but are now in the “eye of the hurricane,” according to the bank.

The bank didn’t seem as concerned for office owners. In its estimation, since office demand has been consistently weak, a recession likely wouldn’t make things much worse.

Still, JPMorgan can’t avoid commercial real estate debt in the short term, considering it has $145 million on its books.

Since the start of the month, spreads — which measure how much a mortgage yields over a comparable Treasury bond — have widened by 20 basis points for high-quality commercial mortgages, demonstrating rising risk. For riskier investment-grade loans, the gulf has widened by 150 basis points.

Higher spreads suggest higher borrowing costs for landlords. That could make it harder to refinance properties across the country. It could also increase the challenge to sell properties to pay off debts.

While JPMorgan is issuing warnings to individual investors, institutional investors appear ready to seize the moment. Last month, Blackstone closed on an $8 billion commercial real estate debt fund, matching its own record for the largest fundraise for the type of investment vehicle. Of course, that closed before this current tariff turmoil.

— Holden Walter-Warner