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497 sats \ 3 replies \ @OriginalSize 25 Jan 2024 \ on: Commercial Real Estate (CRE) looks dead? Personal_Finance
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.
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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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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Interesting
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