Fire! Fire Sale of Failed Bank Assets Speeds Plunge of CRE Values (CMBX S15 Falls To 71.92 As Fed Strangles Economy)

Confounded Interest ^ | 04/04/2023 | Anthony B. Sanders

[Kaiser8408a]

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 SVB assets—including about $13B in real estate exposure and at least $2.6B worth of CRE loans—were sold at a discount of $16.5B, which translates into about 77 cents on the dollar, according to a report in MarketWatch

The rising cost of debt was cutting into the value of older, low-coupon loans before SVB and Signature were shut down. Now, everyone is guessing how low will prices go on CMBS loans in the wake of the fire sales of the fallen lenders’ portfolios.

A recent advisory from Cohen & Steers estimates the decline in values will likely be at least 25%. Loans associated with multifamily properties won’t be immune from the valuation hit; apartment rents declined for the fifth time in six months from January to February.

For office properties, especially in Manhattan, the decline in value will be much steeper. Older NYC office properties are facing a cliff-diving plunge of up to 70%.

CMBX S15 is plummeting like a paralyzed falcon after The Fed started raising rates.

So instead of The Boston Strangler, we have the DC Strangler.

[politicket]

As a commercial RE investor...

As am I...but in the fast-food commercial sector. Have long-term leases on the properties, so they're holding up fine.

[politicket]

Having to pay 4% interest (even though inflation is far higher) is something banks hate.

Which is why I have moved large amounts of liquid assets out of the banks and purchased 4-week US Treasuries.

I stagger my purchases by allocating 25% of my liquid assets each week to 4-week bill purchases. It all gets invested over the course of a month, but I always have 25% maturing each week to keep liquidity in place.

Can't get a more pristine investment than that...

[RainMan]

I don't disagree with your comment about reaping what we sowed, but higher inflation is better than a complete collapse of the banking sector and housing. If nobody has money to invest in a year because they lost it all ... then all that is left is total socialism. The government will be the bank, the government will be housing, and as the other dominos fall, they will be your food source, your energy, etc.

Higher inflation is inevitable, because of quantitative easing. You cannot just print money (Quantitative Easing) without having inflation.

[politicket]

SVB was the victim of an old fashioned bank panic.

C'mon! SVB was no "victim" - and yes, I am in the startup world.

SVB had the absolute WORST risk management strategy (or none) known to mankind.

That is why they went insolvent.

The only "victims" are those who have to pay higher bank fees as a result.

[RainMan]

As am I...but in the fast-food commercial sector. Have long-term leases on the properties, so they're holding up fine.

Your lease may be fine, until your property owner goes out of business.

[politicket]

You cannot just print money (Quantitative Easing)

The Fed does not print money.

In fact, the Fed is pretty useless overall. They've lost control - thinking altering the Fed Funds rate will have a material effect.

Monetary deflation is driving this market on a global scale - the Fed is just a propaganda machine attempting to blame it on something else.

Monetary deflation - not price inflation - will be the demise of the global economy...

[politicket]

Your lease may be fine, until your property owner goes out of business.

The properties are all cheap fast-food joints. They're going gang-busters right now...

Nobody cooks anymore, and they can still afford the cheap and greasy places.

[Alberta's Child]

Banks should match loan maturities with deposit maturities.

How do you do this when loan maturities are never fixed? I would speculate that something like 80% (or more) of 30-year mortgages never reach their maturity before they are paid off.

[Pox]

But you can drive the economy back towards deflation. This is preferable to runaway inflation that will not abate when the politicians have no backbone to do what is necessary. Japan may not be thrilled about it, but it did keep their economy from imploding.

No, rates must continue to rise, jobs must continue to be lost, and the economy must contract. Getting back into a stable balance will not be achieved by continuing the status quo.

The government is already the problem when you consider where we are now, too many entitlements and too many unwarranted bailouts. That ship has already sailed. Uncle Sugar is already the source of millions of Americans livelihoods, and yet another reason we’re at this juncture.

[Be Free]

" UBS bought all the remaining deposits and loans in the SVB portfolio for $72 billion. No one knows what deposits or what loans UBS bought."

Correct me if I'm wrong, but wasn't it Credit Suisse that UBS bought up, and SVB's were bought by First Citizen's Bank of North Carolina?