SCOTT SIMON, HOST:
Imagine you own some commercial real estate in your city's main business or shopping district. And say you rent to a business that's having trouble paying that rent, which means you have trouble paying the mortgage. Whether you make the decision to evict or get a bank loan, what happens next has consequences for the rest of the economy. WBUR’s Adrian Ma explains.
ADRIAN MA, BYLINE: Take a walk through Boston's financial district in the middle of the day, through the canyon of glass and concrete office towers, and you're likely to hear a slightly unnerving sound - near silence. Minus a construction crew here and there, the streets are eerily quiet.
(Singing) Walking through downtown. Walking through downtown. Walking through downtown.
OK, except for that. That's me singing on my way to meet with Liz Berthelette.
LIZ BERTHELETTE: Are we recording now?
MA: Yeah. Is that OK?
MA: Berthelette is a researcher at Newmark, a company that buys and sells commercial real estate. And she's been working in this area for a while, so she's been able to see it change.
BERTHELETTE: Downtown Boston really came into its own over the last few years. And prior to the pandemic, we had the strongest fundamentals this market really has ever seen.
MA: Companies were moving in. Vacancies were near historic lows. And rents were up. The neighborhood had a vibe.
BERTHELETTE: It's the hustle and bustle. It's the people that work downtown. It's lunch meetings and, you know, industry events and meeting up with friends that work at other companies.
MA: Yeah, well, not so much anymore. Several months into the pandemic, vacancies are up. Many companies are moving or trying to sublet their space. And according to her estimates, downtown office buildings are only about 6% full.
So if it's about 6% now, where would it usually be?
BERTHELETTE: Well, it's hard to say because we weren't really measuring that.
MA: Because in normal times, a company buying an office building might wonder, how big is it? Or what are the amenities? Not, is anyone going to show up? But that's exactly the question being asked not just by companies that own offices, but those that own restaurant, retail and entertainment space. And even if you don't buy or sell or lease commercial real estate, there's a reason this should matter to you.
JOE PEEK: I think we probably haven't seen the worst of the bankruptcies and the business failures yet.
MA: Joe Peek is an economist at the Federal Reserve Bank of Boston. He says the chain reaction starts like this.
PEEK: So these businesses fail, and they default on their loans. So now banks have a problem.
MA: Banks see the market getting riskier. So they're a little pickier about who they lend to. He points to a recent survey by the Fed where over 60% of loan officers said they've tightened their lending standards.
That's a lot, it seems like. I mean...
MA: The last time you get that kind of spike is back in 2008.
PEEK: Right, the financial crisis because, again, do I want to lend to you right now on a real estate deal? Probably not because I'd be afraid that you're not going to be able to make the payments.
MA: The problem is, credit for a market is sort of like oil for an engine. You know, it sort of lubricates the economy. If commercial landlords can't get loans, they're less able to cut deals with tenants and help them get through the pandemic. That will lead to more business failures which will make banks tighten up even more. Peek says the longer this cycle continues, the harder it'll be for the economy to get back on its feet. For NPR News, I'm Adrian Ma in Boston.
(SOUNDBITE OF WHITNEY'S "RED MOON")
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