Posted on 06/16/2023 4:56:44 AM PDT by Kaiser8408a
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 up and sell down their loan portfolios in hopes that they will not fall victim to another round of bank runs.
“There is an estimated $1.5 trillion of commercial property debt that will be due for repayment in about 18 months,” Peter Earle, an economist at the American Institute for Economic Research, told The Epoch Times. “It’s not improbable that even if interest rates have fallen by that time, some of that real estate debt will nevertheless be impaired and have an adverse impact on regional banks.”
Banks that make CRE loans consider factors like debt service coverage ratios (DSCRs), which measure a property’s income relative to cash payments due on loans. Simulating mortgage interest rates from 5.5 percent to 7.5 percent, Trepp projected that between 28 percent and 44 percent, respectively, of currently outstanding CRE loans would fail to meet the 1.25 DSCR ratio today, and thus be ineligible for refinancing.
Joe Negan. Resident destroyer of the US economy.
(Excerpt) Read more at confoundedinterest.net ...
Just my opinion, but this probably is more of a contributor to the 'lets bring bodies back into the buildings' than productivity issues.
Agreed. Remote work works. It was proven over 2 years with COVID, and many organizations haven’t lifted the allowance. Those who have are finding tepid responsiveness from their proles.
Are Pension funds and retirement accounts divesting from these REITS? If they’re not doing it now, I have no sympathy. Of course, Congress is expected to bail them out again
You are 100% correct on that last point. And that’s also why the big banks and financial institutions have been at the forefront of the “back to the office” nonsense. These banks have underwritten hundreds of billions of dollars in commercial mortgages, and they are forcing their own workers back to the office just to prop up the real estate market in major urban centers.
How exactly?
Anyone that can fog a mirror on a cold morning saw this coming. It happens every down cycle and is additionally burdened with lingering COVID work from home policies. Empty building don’t pay for themselves.
For us regular Joe’s, the question has been, will it spread to residential? It normally does, but I don’t think it will this time. In my area, inventory is too low for prices to fall. Even with the higher rates, homes sell same day above asking price here. You’ve got Blackrock and millions of new illegals as additional buyers in the market. You’ve also got the green pressure on development. Increasingly woke finance will cut off capital to traditional developers in favor of developers building Martin sized boxes for us. I already see this happening. The only housing available here are small apartments in increasingly larger complexes.
I suspect land and homes will become more valuable than gold. Especially, if you have good water.
Lucky I never ran a bank. I’d be like: “Tell me again why a new shopping mall is a good idea, considering that most people now buy from Amazon and the existing malls have been taken over by Canadians*, thanks to court rulings”. “Tell me again why I should finance your office building plans when half of office workers now work from home?”
*neutral term used here in order to avoid charges of racism.
People are doing less shopping themselves thus less
congestion and cross contamination. It’s easier to do
these days with computer capabilities. You drive up,
let them know you are there and they bring it out to
your car and load them into it for you. Off you go.
We now have a full 3-year graduating class of fresh college grads working from home who are the ones who need coaching and cooperation more than anybody else. Even the more experienced experts need to get together with other employees. Of course, I'm not talking about YOU, just everybody else.
There probably was one benefit discovered by WFH'ers during the lockdowns; it usually does not take 8 hours to put in an 8-hour day.
The big one is office space in large cities is not as necessary as it once was.
When you look at progressive big cities and their approach to policing an unintended consequence is rampant homelessness, street crime, and shop lifting. That means that central city shopping is no longer viable. Hence in places like San Francisco, the developers of major hotels and shopping centers as saying to the banks and pension funds that loaned them money........we quite, take the empty property and good luck to you.
When you look at old shopping centers you find that Amazon.com and other on-line shopping have destroyed many tenants to the point that they are being transitioned into multi-family housing.
Yes, commercial real estate has serious viability problems and that means that banks, pension funds and others that hold the loans on these pieces of property are going to be looking at defaults or renegotiated loan terms at less favorable rates.
They’ll get a bailout.
☑️
F.I.R.P.
Federal Immigration Relief Program, where each (illegal) will automatically have a remodeled office space home.
....or the likes coming
That’s the bailout.
Problem is that most commercial offices have only limited bathrooms per each floor, limited cooking facilities and no showers. So the level of remodeling would be horrific in terms of plumbing, HVAC, and electricity and/or natural gas. Since high rise office buildings were never designed for those modern conveniences, it will be hard to find all the places to run the pipes, conduits, and ducts.
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