Free Republic

As the shadows of economic uncertainty lengthen, the once-solid foundations of commercial real estate markets now tremble under the weight of impending crisis. With banks holding nearly 40% of all CRE debt, the tremors are felt far and wide, signaling a looming catastrophe that could spell disaster for financial institutions worldwide. The warning bells are ringing loud and clear, with UBS flagging the downturn in commercial real estate markets as one of the “top and emerging risks” facing the banking sector. The sharp decline in demand for office space, coupled with soaring borrowing costs, paints a bleak picture for an...

The Meltdown of Commercial Real EstateIn 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.The note, by Senior Editor James Crombie, walks us through the festering hellscape that is commercial real estate.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...

You might have missed it in the headlines, but US Bancorp recently initiated significant job cuts, with areas like talent acquisition and technology taking a hit. But what does this mean for the broader financial landscape? Well, let’s talk about multifamily commercial real estate (CRE) mortgages – a sector that’s been quietly raising red flags. While apartments have held up better than other segments like office and retail, cracks are starting to show, with some eye-popping defaults in recent months.

The CRE implosion is picking up steam. Check out the grim stats on Pittsburgh.Unions are also a problem in Pittsburgh as they are in Illinois and California.Downtown Pittsburgh ImplosionThe Post Gazette reports nearly half of Downtown Pittsburgh office space could be empty in 4 years.Confidential real estate information obtained by the Pittsburgh Post-Gazette estimates that 17 buildings are in “significant distress” and another nine are in “pending distress,” meaning they are either approaching foreclosure or at risk of foreclosure. Those properties represent 63% of the Downtown office stock and account for $30.5 million in real estate taxes, according to the...

Will The Dream Warriors at The Federal Reserve fix this impending disaster? Or will this be a Nightmare on Constitution Avenue, where the mausoleum-like Federal Reserve building are located? A Blackstone-owned Manhattan office tower with a $308 million mortgage is being marketed at a discounted rate of $150 million, representing a 50% reduction. The special servicer, Midland Loan Services, has enlisted Jones Lang LaSalle Inc. to facilitate the sale of the tower at 1740 Broadway. The bundled debt, included in a commercial mortgage-backed security, is marked with a 50% discount. In April, the tower was appraised at $175 million, a...

Rising interest rates, the remote work trend, and the dominance of e-commerce sellers have combined to hammer the commercial real estate market over the past few years. Sky-high office and retail space vacancies are plaguing owners in this new environment, rents are plummeting, and borrowing costs have soared. As a result, U.S. commercial real estate prices have fallen 11% since the Federal Reserve began raising interest rates in March 2022, the IMF reported last week, the worst decline in over 50 years. The outlook for the sector is now so bleak that Cantor Fitzgerald’s billionaire chairman and CEO Howard Lutnick...

Is it sundown for the US commercial real estate market? According to Trepp, the volume of CMBS delinquency increased 49.4% during 10 months through October. Looking for more? This piece has been taken from Trepp and Commercial Real Estate Direct’s Q3 2023 Quarterly Data Review. Access the magazine here. The volume of CMBS loans that are classified as delinquent increased by 49.4% during the 10 months through October to $27.91 billion. That volume amounts to 5.07% of the $601.98 billion universe tracked by Trepp. In contrast, delinquencies at the end of last year amounted to 3.03% of the $616.15 billion...

Aug 22 (Reuters) - S&P Global cut its credit ratings and outlook on multiple U.S. regional banks on Monday, saying higher funding costs and troubles in the commercial real estate (CRE) sector would likely test their credit strength. A sharp rise in interest rates by the U.S. Federal Reserve is fueling liquidity concerns as costs tied to funding deposits surge, the S&P said in a summarized note. The agency cut its ratings on Associated Banc-Corp (ASB.N) and Valley National Bancorp (VLY.O) on funding risks and higher reliance on brokered deposits, while UMB Financial Corp (UMBF.O), Comerica Bank (CMA.N) and KeyCorp...

Bidenomics represents another brick in the mall. Or office space! Understanding the backdrop of the crime-ridden progressive metro area of San Francisco, alongside the mass exodus of businesses and residents, and the record-high vacancy rate of office towers, we asked a very important question earlier this summer: What are office buildings worth? We quickly found out in June that one downtown San Francisco office building sold for roughly 70% less than its previously estimated value, an ominous sign of what would come as the commercial real estate market dominos appear to be falling. Now Sixty Spear St., an 11-story building...

We are back in the USSR! And the economy taking commands from Washington DC! Introduction During the COVID-19 pandemic the occurrence of remote work jumped, out of sheer necessity. The technology was already available, but the pandemic accelerated its adoption and bypassed the hesitation of employers to allow people working from home. In many cases, remote work has been successful and therefore seems to have become a permanent feature, often in hybrid form. For employers, it has become an employee benefit to attract people in a tight labor market and it saves on office space costs. The flipside of the...

Its not a wonderful world for regional and small banks given the deterioration of office markets. The latest data from Trepp, which tracks commercial mortgage-backed securities (CMBS) securities market data, shows the delinquency rate of commercial property loans packaged up by Wall Street jumped again in July, with four of the five major property segments posting increases. “While the rest of the US economy has seen relief in terms of higher equity prices, better-than-expected corporate earnings, and falling inflation numbers, the commercial real estate (CRE) market continues to be left behind,” Trepp wrote in the report. Trepp data found the...

Commercial real estate (CRE), particularly office space, reminds me of the Arthur Brown tune “Fire!” except that Jerome Powell of The Federal Reserve is the God of Hellfire! While fighting inflation caused by … The Federal Reserve and insane Federal spending (aka, Bidenomics). Call this the Over, Under, Sideways Down economy. The top 1% are doing quite well, while the lower 50% of net worth households are struggling. The Q1 2023 NCREIF Office property (value) index shows declining office value since Q2 2022 as The Fed began raising its target rate to combat inflation. From Trepp, we have this shocking...

Where is the bottom for commercial real estate (CRE)? Starwood Capital Group’s Barry Sternlicht recently told Bloomberg’s David Rubenstein about the ongoing crisis in the commercial real estate sector, equating it to a severe “Category 5 hurricane“. He cautioned, “It’s sort of a blackout hovering over the entire industry until we get some relief or some understanding of what the Fed’s going to do over the longer term.” Currently, the biggest problem in the CRE space is sliding office and retail demand in downtown areas. Couple that with high-interest rates, and there’s a disaster lurking for building owners. According to...

No, this isn’t a John Kerry/Greta Thunberg hysterical warning about climate change. But a storm created by 1) Biden/Congress spending splurge and 2) excessive monetary stimulypto by The Federal (Feral) Reserve. Now that The Fed is withdrawing the excess stimulus, we are seeing a world of pain for commercial real estate. A financial climate change! Days after Barry Sternlicht’s Starwood Capital Group defaulted on a $212.4 million mortgage backed by an Atlanta office tower, Bloomberg released an eye-opening interview with the billionaire investor about mounting distress in US commercial real estate. “We’re in a Category 5 hurricane,” Sternlicht said in...

Between work at home, Bidenflation and The Feral Reserve, commercial real estate and regional banks are suffering … and it could get a lot worse. And Joe Biden (aka, Negan) in general. The work-from-home trend has been taking its toll on office landlords and is now making its way through to banks’ commercial loan portfolios, leading some analysts to predict that more trauma could be on the way for regional banks this year. And in the current climate of bank failures, short sellers, and nervous depositors, banks with large exposures to commercial real estate (CRE) loans are racing to clean...

Biden and The Fed are playing their own version of Johnny Horton’s “Sink The Bismarck!” This version is called “Sink The Economy!” The commercial real estate space is experiencing stress following the recent turmoil in the regional bank sector, with the rapid rise in interest rates, tightening lending standards, and structural changes, such as sliding demand for office buildings. Some structural factors, such as remote work and hybrid work, have doomed the office space segment. This has left empty office buildings scattered across major US cities as the number of landlords falling behind on repayments due to the difficulty of...

Like the song “Walk away Renee,” the owners for the San Francisco Union Square Hilton and Park 55 Hotels are walking away from their sizeable loan payments. San Francisco is definitely feeling the blues. But it isn’t just San Francisco. Phil Hall reports that Fitch Ratings reduced its 2023 outlook for the U.S. real estate investment trust (REIT) sector outlook from “Neutral” to “Deteriorating,” citing the tumult in the commercial real estate space. While Fitch noted that most of its rated REITs “have the capacity to withstand such a slowdown within rating sensitivities [and] those with ample dry powder could...

Living in Biden Country! Where big American cities are becoming like Lori Lightfoot’s Chicago. And the sad headline of the day (other than pure chaos on the Mexican border) is that NO RENT IS BEING PAID ON 20% OF ALL US OFFICE SPACE! And small banks hold 70% of commercial real estate loans! As The Fed momentarily pauses rate hikes, office vacancy rate just hit an all-time high. Another Biden first!! And the NCREIF office property index falling as The Fed tightens.

US Treasury Secretary is the God of Hellfire! Thanks to Yellen’s catestrophic Too-Low-For-Too-Long (TLFTL) and insane Federal spending, we are seeing the aftermath of The Fed trying to fight inflation. A fire sale of failed bank assets!! With interest rates still rising, prices retreating and credit evaporating—and a stressed-out banking system moving to shore up balance sheets—expect more fire sales of older CMBS loans and an acceleration of plunging CRE values in markets across the US. Last month, a fire sale of CMBS loans was lit as $72B in assets from the failed Silicon Valley Bank (SVB) were sold. The...

US metro office vacancies hit an all-time high in Q4 2022 and office properties values began to decline as The Fed retreats as it fights inflation. So much money printing. Its The Fed’s claim to fame.