The Financial Stability Board published a report analysing vulnerabilities in non-bank commercial real estate (CRE) investors, focusing on real estate investment trusts (REITs), property funds and other non-bank mortgage lenders. It identifies liquidity mismatches, high leverage and opaque CRE valuations as key risk channels, and highlights how interlinkages with banks could transmit CRE market shocks into the banking system. FSB member data indicate banks and non-banks together provided at least USD 12 trillion in equity and debt financing to CRE in 2023, with non-bank investors playing a significant role in some jurisdictions. The report points to liquidity mismatches in some open-ended property funds that can leave them vulnerable to runs, citing recent instances where funds introduced gates or suspended redemptions, and notes that implementing the FSB’s recommendations on liquidity mismatches in open-ended funds would help address this risk. It also identifies pockets of high financial leverage in some REITs and property funds that could force deleveraging if valuations fall or debt cannot be rolled over, and warns that illiquidity and infrequent valuations can obscure losses and contribute to abrupt loss recognition in a downturn, supporting greater valuation transparency and risk management that reflects valuation uncertainty. Complex links with banks as lenders, investors and holders of common exposures are presented as a further spillover channel, with the report underscoring the importance of closing remaining data gaps to improve risk monitoring. While noting that the global financial system has so far weathered recent adverse developments in CRE, the report calls for ongoing monitoring given the more volatile performance of CRE exposures, structural shifts in demand, and the effects of extreme weather events and new energy efficiency standards in some jurisdictions.

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