people seem incapable of learning from their mistakes as proven frequently in the real estate market;

Vulnerable lenders are being squeezed on all sides as a debt-laden real estate sector succumbs to hybrid working

America’s commercial property collapse is becoming a danger to the financial system.

Office blocks purchased with debt remain half empty, 18 months after the end of the pandemic. Thousands of buildings will have to be torn down. Hundreds of regional banks are sitting on crippling losses that they yet to acknowledge.

“It’s a trainwreck in slow motion,” said Professor Stijn Van Nieuwerburgh, a property and finance expert at Columbia University.

“The return to the office isn’t happening. Data from turnstile swipes shows that occupancy levels are still just 49pc of where they used to be. It has been stable for a year and a half,” he said. Sensors tracking physical presence in offices tell the same story. Hybrid work is here to stay.

Lenders are still gambling on resurrection, a reflex of ‘extend and pretend’ in the hope that office rents will recover and that struggling borrowers will be able to service their debts again. “Banks would do better to bite the bullet now because losses are going to be much worse in two years,” Prof Van Nieuwerburgh said.

His team calculates that America’s office stock has lost 40pc to 45pc of its pre-Covid value, or will have once market discovery exposes the damage already in the pipeline from two parallel shocks: shrinking rents and the most aggressive monetary tightening of modern times.

“We are starting to see distressed sales every day. Offices are selling for 50pc, 60pc or 70pc discounts. At these values the equity holders are wiped out, and lenders take a 30pc loss,” he said.

Renters are walking away or taking less space as leases come due. Average office rents have already dropped by 20pc. Yet two-thirds of the leases have not yet come up for renegotiation. The full exodus has yet to happen.

“We’re in the early innings. That’s the reality,” said Scott Rechler, head of real estate specialists RXR and a board member of the New York Fed............more........