Financial debt is an essential tool for financing growth and investments. However, it can become a problem when its value exceeds that of the assets it finances. This is the case in the commercial real estate sector, which has suffered the full brunt of the consequences of the pandemic.
Finance: debt, a double-edged lever
In Finance, financial debt constitutes a strategic lever to finance growth or investments. But it carries risks, including excessive debt. It occurs when debt becomes greater than the real value of assets.
The debtor can therefore no longer repay his debt by selling his assets, even in the event of liquidation. He finds himself in a situation of “negative equity” or “toxic debt”.
The financial crisis particularly affects the commercial real estate sector, which has suffered the full brunt of the consequences of the pandemic. According to the National Bureau of Economic Research, approximately 14% of all commercial real estate loans and 44% of loans on office buildings would be in “negative equity” in the USA.
A study by Green Street Advisors predicts that commercial real estate values will fall by $480 billion in 2024after a loss of 590 billion in 2023.
Crypto, an innovative and responsible alternative
Faced with this financial situation, players in the commercial real estate sector must find solutions. Crypto is one of them. It makes it possible to diversify sources of financing. Moreover, it is possible to use it to securitize real estate assets.
However, cryptocurrencies are subject to strict regulations and pose legal risks. It is therefore necessary to find a judicious balance between risks and opportunities.
Finance therefore faces the challenge of debt exceeding its real value, which threatens financial stability and economic growth. Crypto can be an innovative solution, provided you respect the rules and cooperate with the relevant authorities.
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