”In a July 24 note, Pimco’s John Murray and François Trausch warned of a $1.5 trillion wall of maturities for commercial real-estate loans over the next two years. “Lenders and borrowers will be forced to ‘face the music,’” they wrote. If they are right, it would mean the expected-loss model hasn’t been working as billed. Lenders still have wide discretion to delay officially expecting red ink if they would prefer not to expect it. U ntil they can’t. At New York Community Bancorp, credit losses on commercial real-estate loans, including office loans, have surged in the past few quarters, raising questions about why management took so long to identify them. A bigger concern should be the losses at other lenders that aren’t yet visible to outsiders. Noted short seller Carson Block, in a report last December, predicted large credit losses would soon swamp Blackstone Mortgage Trust, a nonbank commercial real-estate lender. The company at the time called his report “self-interested and misleading” and said it was “well positioned to navigate this environment.” Then in July, it cut its dividend and posted its third consecutive quarterly net loss. Credit losses last quarter were so large that they exceeded the company’s net interest income. Curiously, default rates have been higher for property loans backing widely held commercial-mortgage-backed securities than for the same types of loans on banks’ balance sheets. That underscores how traditional lenders have more flexibility to help borrowers work out their problems than do the vehicles that issue commercial-mortgage-backed securities, which can’t so easily “extend and pretend.” https://lnkd.in/eN3BC4qY