As US regional banks Silicon Valley Bank and Signature Bank went under this month, PERE – along with affiliate publications Real Estate Capital USA and Real Estate Capital Europe – focused on the implications for borrowers from a possible ensuing banking crisis.

This focus continued alongside the growing banking sector contagion fears when Credit Suisse was hurriedly acquired by Zurich neighbor UBS days later. Even as Deutsche Bank’s shares crashed last Friday over insurance fears, our instincts were to assess the bank’s property loans and consider the possibility of systemic banking problems.

But we heard different mood music this week as concerns grew over commercial real estate’s role in any future systemic trouble.

Now, everyone from Starwood Capital’s founder Barry Sternlicht to the world’s second richest man, Elon Musk, is weighing in on whether, in fact, commercial real estate will not just fall victim to, but further exacerbate a banking crisis.

“This is by far the most serious looming issue,” Musk responded in a Tweet to The Kobeissi Letter, outlining that $2.5 trillion in commercial real estate debt needs refinancing in the next five years.

Sternlicht’s ire was directed at the Federal Reserve for pushing on with rate hikes following its latest 25 basis points increase last week. He pointed to a constricting lending environment for regional banks, which, since the global financial crisis of 2008, have become US commercial real estate’s biggest lending source. “I just wonder who on earth is going refinance that office building on Park Avenue.”

Twice this week we heard of a negative ‘feedback loop’ in which constrained lending activity leads to an uptick in commercial real estate loan defaults. Paul Ashworth, chief US economist at Capital Economics warned such an uptick would compound already decreasing capital values, increasing loan-to-value ratios and, therefore, forcing lenders to increase their loan loss provisions.

Another note this week from Adam Slater, lead economist at Oxford Economics, suggests banks could be facing “potentially large losses of 15 percent or more in areas such as commercial property.” That, in due course, would lead to greater tightening of lending standards.

The second mention of an adverse feedback loop was at our own PERE Real Estate Debt Funds roundtable, hosted in London on Monday, where real estate debt managers agreed declining values were, in turn, leading to “even more conservative” lending activities. “Nobody wants to be on the wrong side of the trade,” one participant said.

What would break the loop? An accommodative regulatory reaction, both for the banking sector to keep lending, and the property sector to allow a rapidly expanding array of obsolescent properties be converted to other, more useful, purposes would surely be part of any solution.

An accelerated alternative lending universe would provide a helping hand too. That much is quantifiably happening. According to a preliminary reading of PERE’s Real Estate Debt Fund 50 ranking, managers raised nearly $266 billion for debt strategies in the last five years, up 18 percent on last year’s total and continuing an upward trend. The latest iteration of the ranking is published in May.

But the most obvious answer resides in Sternlicht’s complaint: rate cuts. Or at least a hold on further increases. If there is one element that connects SVB, Signature, Credit Suisse and Deutsche Bank, it is that their underwriting is buckling under a series of aggressive, successive hikes. A settled rates environment gives lenders and borrowers alike a solid shot at re-determining many asset-level business plans.

Of course, for that to happen, inflation needs to be brought under control. And for that to happen, worsening conditions for real estate and the wider economy could, unfortunately, be part of the answer.