On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Doug French to discuss the health of US banks, the specific dangers of commercial real estate debt, and the risks of industry consolidation.
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457 sats \ 9 replies \ @grayruby 16 Feb freebie
I actually got notified for this one. Hooray.
CRE is a ticking time bomb in my opinion, which of course was going to take many years to play out with the way commercial leases work. Even in my town I have seen 4 or 5 storefronts either vacant or with closing soon signs in the past couple weeks. Someone owns these properties and they can't all become weed shops (we have about 8 weed shops within a couple square miles- ski town after all)
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50 sats \ 8 replies \ @Undisciplined OP 16 Feb
There's been a vacant former K-Mart near our house for the entire time we've lived here and it didn't look like it had closed recently when we moved. It's wild to me that so much space is just sitting unused while someone is paying a big property tax bill every month.
The video gets into some of the leasing dynamics. As you say, many won't be renewed and that's going to generate enormous losses for the owners of those properties.
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457 sats \ 7 replies \ @grayruby 16 Feb
The big issue is similar to the banking crisis last year, all these Commercial debt holders are way offside compared to what's on their books. Many properties are worth half of what they were and now sitting in negative equity.
We haven't had KMart in Canada since I was a kid. I remember going to KMart with my mom and even as a kid noticed the place looked like a complete mess.
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50 sats \ 6 replies \ @Undisciplined OP 16 Feb
It seems like people have seen this coming for a long time. Why is it all coming to a head now?
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457 sats \ 5 replies \ @grayruby 16 Feb
I think it is just a matter of the duration of time it takes for rates and occupancy changes to flow through this sector. A lot of commercial property holders would have refinanced at the peak when rates were near zero. We are probably getting a confluence of events now where the property owners need to refinance again but at a much higher rate and the property values have been declining over the term of the loan because as leases rolled off and weren't renewing or demanding smaller spaces.
I had a customer that was a tech company (I wouldn't say a start up but they were a young company/VC funded) that had taken a 10 year lease on 30k sqft of office space in 2018. Because it was 10 years they wanted about triple the space they needed because they planned to triple their staff over that time period. Standard practice in tech, get a bunch of VC money, spend it frivolously to try to get hyper growth so you can raise another round at a significantly higher valuation and repeat. Anyways, these guys went from 150 staff in a giant space, down to 15 people working there daily and the rest working from home post pandemic. They had so much unused space and were paying a fortune for it. They used to let me use their meeting rooms for free to have meetings with clients of my business because they were completely unused and they were hoping maybe to get a bit of word of mouth going amongst small businesses that they had some office space available to rent. They essentially tried to become a we work within their own office and last I heard they were trying to find a way to break their lease.
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50 sats \ 4 replies \ @Undisciplined OP 16 Feb
Did you weigh in on the discussion about what's going to happen with all this unused commercial real estate?
I don't remember seeing your response, but it seems like you're in a better position than most of us to talk about it.
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633 sats \ 3 replies \ @grayruby 16 Feb
No I did not. Didn't notice that post. I am not sure I can contribute much anymore. I did have my finger on the pulse a bit when I had my business because we worked with many commercial property owners but a lot changed during the pandemic and a lot has changed since so that leaves me around 4 years removed from knowing what's going on.
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50 sats \ 2 replies \ @Undisciplined OP 16 Feb
I bet you still have a better handle on what kinds of repurposing is even feasible. For instance, a lot of the conversation was around the practicality of converting commercial real estate into residential and whether that can even be done through renovations.
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