The pandemic has changed the way Americans work, shop, socialize and more. Tens of millions of us have worked from home throughout much of 2020, doing much of our shopping online, while keeping forays to stores and restaurants to a minimum.

Hope is on the horizon, of course. If an effective vaccine becomes widely available next year, Americans might once again go out to shop, eat, work and play.

But if vaccines are delayed or provide only limited protection, some of the changes the pandemic has wrought might stay with us.

Ripple effect

Commercial property owners in the Twin Cities and across Minnesota undoubtedly understand what a long-term shift in working and shopping habits would mean: many of their properties would lose value, and those losses would, in turn, flow through banks and bond investors.

A recent Barclays report estimated that office property values could drop 20 to 35 percent in that scenario.

Cutting needed help

The Washington Post recently took a look at how commercial real estate losses across the nation are threatening banks and economic recovery. The newspaper reports that because banks fear a coming wave of business bankruptcies and defaults, they’re putting restrictions on new lending, even though “the virus-ravaged economy needs all the help it can get.”

Eric Rosengren, the president of the Federal Reserve Bank of Boston, said “a curtailment of credit resulting from such problems has caused serious head winds to recoveries in the past and may be a serious problem going forward.”

Bankers’ worries are not unfounded, of course. In the not-distant past, banks sustained big losses on commercial real estate loans in the S&L crisis of the 1980s and ‘90s and again in the Great Recession in 2008.

Depending on commercial property

The Post notes that Federal Deposit Insurance Corp. has assessed 356 banks as “concentrated” in commercial real estate, adding that smaller community banks are especially vulnerable because of their dependence on commercial property loans.

Cam Fine, the former president of the Independent Community Bankers of America, predicts “a great deal of pain in the commercial real estate market” next year. “It’s almost inevitable,” he said.

The Fed looks ahead

Fed Chair Jerome H. Powell said in September will try to help banks and commercial borrowers get through the pandemic, but he conceded that smaller banks could face hard times. “They have more exposure to real estate and to smaller businesses, which are probably more vulnerable and have less resources to deal with this sort of stress.”

When the pandemic hit hard in spring, the share of delinquent commercial real estate loans jumped from 2.3 percent in April to 10.3 percent in June. While that figure has softened to a still-high 8.3 percent, it still means borrowers are behind on their commercial real estate loans to the tune of about $45 billion, said Trepp, a financial data provider.

Hitting close to home

The Post cited the case of the Burnsville Center south of Minneapolis to illustrate how quickly and deeply the value of commercial property can erode. This past July, real estate investment trust CBL & Associates was due to pay off its $63 million mall mortgage. Because of “store closures and rent restrictions,” CBL gave up half of the 525,000-square-foot mall to its lender.

The property had been worth $137 million in 2010, the newspaper reported. When the unpaid note was recently sold at auction, it fetched less than $20 million.

That’s the kind of devastating loss that worries bankers and commercial property owners alike.