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Commercial Real Estate (CRE) looks dead?
301 sats \ 8 comments \ @BitcoinIsTheFuture 25 Jan 2024 Personal_Finance
Yikes! 14% of all commercial real estate (CRE) loans and 44% of office building loans are now in "negative equity."
In other words, the debt is now greater than the property value on all of these properties.
Currently, US banks hold over $2.9 trillion of CRE debt, the majority of which is held by regional banks.
Office building prices are down 40% from their highs and CRE as a whole is down over 20%.
All as rates rise and many of these loans are due to be refinanced.
CRE is beyond bear market territory.
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497 sats \ 3 replies \ @OriginalSize 25 Jan 2024
With not only the debt overhang but cultural changes leading to more remote work and I forsee a lot more bailouts aka nationalized debt and properties. Do the distorting effects of money printing ever end?
Somewhat related is the multifamily residential where printing made housing unaffordable then causes affordable housing projects to become instantly unprofitable, leading to poor maintenance and service on the new buildings. I suspect cities are going to have to get wise about this dynamic and require that developments have a lot more cash put into them so they can weather however long it takes for this cycle to work its way through.
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48 sats \ 2 replies \ @Undisciplined 25 Jan 2024
This is going to require major zoning reform before it clears up. There just isn't nearly the demand for commercial real estate as there used to be and it's not coming back in the foreseeable future.
I posted an article about the corresponding issue for apartment buildings.
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497 sats \ 1 reply \ @OriginalSize 25 Jan 2024
Thanks for the link about apartment buildings. I was surprised not to see collateral mentioned. Maybe it's just a commercial phenomenon but as I understand it, many loans require additional collateral when the rent doesn't make enough profit over the interest payments.
What this means is it's cheaper from a capital standpoint to leave an apartment vacant instead of rent it at market rate IF market rate hasn't risen with the cost of interest. As I understand it that's a factor which effectively reduces supply and makes the market that much tougher for the renter.
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0 sats \ 0 replies \ @Undisciplined 25 Jan 2024
Interesting
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0 sats \ 2 replies \ @TNStacker 26 Jan 2024
This is from where the crash comes.
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21 sats \ 1 reply \ @BitcoinIsTheFuture OP 26 Jan 2024
The bubble of all bubbles bursting?
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10 sats \ 0 replies \ @TNStacker 26 Jan 2024
Indeed. Remember what Kevin O'Leary said about one of Donald Trump's cases regarding over- and -under-representing property values?
"This is what real estate developers do!"
Now we shall see the consequences of such fiat behavior.
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0 sats \ 0 replies \ @Undisciplined 25 Jan 2024
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