Important Takeaways:
- In case you’ve still got money in a bank, Bloomberg is warning that defaults in commercial real estate loans could “topple” hundreds of US banks.
- Leaving taxpayers on the hook for trillions in losses.
- To set the mood, a new study predicts that nearly half of downtown Pittsburgh office space could be vacant in 4 years. Major cities like San Francisco are already sporting zombie-apocalypse downtowns, with abandoned office buildings baking in the sun.
- So what happened?
- The Fed’s yo-yo interest rates first flooded real estate with low rates and cheap money. Which were overbuilt.
- Then came the lockdowns, which forced millions to figure out new workday patterns.
- These days, everyone talks about hybrid models of working, some in-person and some remote… In any case, even a 30 percent reduction in the footprint of office space once the leases are renewed could topple the entire sector.
- The restaurant and retail sectors of downtown feel the pinch, with more closures all the time. Adding to the pressure are absurd levels of inflation and ever-riskier streets on matters of personal security. Put it all together and there is ever less reason to slog to the office.
- When the Fed panic-hiked interest rates in the 2021 inflation, that put trillions of commercial real estate underwater even without other factors. Add to that crime, inflation, plus remote work, and you have a dangerous mix that could toppled cities as we know them.
- That crisis only stopped when Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell effectively bailed out every bank in America with sweetheart loans written on fictitious asset values along with unlimited taxpayer guarantees through the comically underfunded FDIC.
- Without those government pre-bailouts, one paper last year by researchers at Stanford and Columbia estimated that 1,619 US banks – about a third of them – could be at risk of failure.
- The problem is that nothing was actually fixed. In fact, it’s getting worse. For the simple reason that as the months roll by there’s more and more debt coming due.
- And that brings us to Crombie, who notes that there’s $929 billion of commercial real estate debt coming due in the next 9 and a half months.
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Important Takeaways:
- US office real estate prices headed for ‘severe crash,’ investors say
- The commercial real estate market is headed for a severe collapse due in large part to sky-high interest rates and declining property values, according to a survey of investors.
- Around two-thirds of those who responded to a Bloomberg News survey said they believe that the commercial real estate market will recover only after a crash.
- When asked when they believe the price of office properties will hit bottom, 44% said they expect that to happen in the second half of next year while 22% said it will be in the first six months of 2024, according to Bloomberg News.
- Investors expect commercial real estate prices to crash, according to a recent survey. Shutterstock
- Investors are bracing for a possible crisis triggered by default on $1.5 trillion in debt that is coming due by the end of 2025.
- Just 6% of the 919 respondents said that prices would bottom out this year
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Revelations 13:16-18 “Also it causes all, both small and great, both rich and poor, both free and slave, to be marked on the right hand or the forehead, so that no one can buy or sell unless he has the mark, that is, the name of the beast or the number of its name. This calls for wisdom: let the one who has understanding calculate the number of the beast, for it is the number of a man, and his number is 666.”
Important Takeaways:
- #1 We were warned that a great commercial real estate crisis would be coming, and now it is here.
- With recent stress in the regional banking sector, sentiment in US commercial real estate (CRE) – and especially the office sector – has turned negative as investors prepare for potential spillover effects (with JPM, Morgan Stanley, and Goldman Sachs all joining the gloom parade), especially as high-profile defaults continue to make headlines as borrowers face higher debt service costs and refinancing becomes much harder ahead of a $400 billion CRE debt maturities this year alone…
- #2 We were warned that there would be widespread layoffs as economic conditions in the United States deteriorated. Sadly, that is now happening all around us. For example, on Monday accounting firm Ernst & Young announced that they will be laying off thousands of highly paid workers…
- #3 We were warned that the largest corporate debt bubble in the history of the world would eventually burst, and now corporations are beginning to default on their debts at a rate that should deeply alarm all of us…
- #4 We were warned that we would witness a dramatic surge in bankruptcies in 2023, and that is precisely what is happening…
- Bankruptcy filings across the United States rose for the third straight month in March in all major industries. A total of 42,368 new bankruptcies were filed last month, according to data from Epiq Bankruptcy, a provider of U.S. bankruptcy court data, technology, and services.
- #5 We were warned that the rest of the world would eventually start rejecting the U.S. dollar, and now “de-dollarization” is happening at a “stunning” pace…
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