Bankers Are Worried About Sky- High Commercial Real Estate Prices

Janet Yellen recorded the warning a day before stepping down as Federal Reserve chair in February: Commercial real estate prices look strikingly high. Her successor, Jerome Powell, flagged it again a month later.

Analysts at Goldman Sachs Group Inc. tried in May to put a number on it: Properties may be overvalued as much as 16 percent. Soon, Wells Fargo Chief Executive Officer Tim Sloan went on television, saying some deals looked “frothy” and that his bank was pulling back. In the past month, executives at regional lenders including U.S. Bancorp and KeyCorp have chimed in with similar concerns.

Yet, by some key metrics—most notably default rates—the market seems serene. So why all the handwringing?

Years of economic growth and easy financing have pushed prices for office towers, apartments and warehouses to record heights. Executives speaking out say they’re worried some buyers are betting too boldly that they can just keep raising rents.