Commercial Real Estate Threatens "Hundreds of Banks" \ stacker news ~econ

Commercial Real Estate Threatens "Hundreds of Banks"www.profstonge.com/p/commercial-real-estate-threatens

3045 sats \ 15 comments \ @k00b 22 Mar econ

We're starting to see glitches in the matrix; New York Community Bank just went through a near-death experience over its garbage portfolio of commercial real estate loans, dropping almost 80% before it was bailed out by vulture investors while the mega-banks hover like mega-vultures.

More will come. Potentially a lot more: a recent study from the National Bureau of Economic Research estimated that up to 385 American banks could fail over commercial real estate loans alone.

I'm still waiting for the shoe to drop on residential real estate. That hasn't seemed to really start yet. This time last year we had a really hard time finding a home to rent in our neighborhood. They'd get snatched up in days. Now there are a handful of homes on my walks alone that have had 'for lease' signs up for months, many are also for sale, and the overbuilding continues ... There are more cranes (I counted 8 that I could see the other morning) over Austin's downtown than there ever were in the last couple of years.

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1343 sats \ 0 replies \ @grayruby 22 Mar

I was going to do a post on CRE today myself but I will share the data I have in the comments of this post instead. A few weeks ago @Undisciplined and I were discussing CRE which sent me on a fact finding mission as I am somewhat out of the loop these days being a couple years out of my business now and not really keeping up with my former circle other than standard pleasantries.

The following is data on office vacancy rates in the city of Toronto comparing March 2024 to March 2023, March 2020 (pre pandemic effect) and 20y years ago March 2004. As you can see vacancy rates are drastically higher compared to March 2020 and still increasing, as 2024 number is higher than 2023. Interestingly enough they are not that much higher than 20 years ago, which is notable but not really relevant considering almost no property is going to have debt issued for it at a 2004 valuation.

Please note this is for office only. From what I have been told by contact at CBRE more broadly across Canada office and retail (unless it is anchor tenant) have been struggling while industrial, data centres and other specialty (think medical, research, lab, cold storage etc) have been doing well.

151 sats \ 8 replies \ @kepford 22 Mar

Interesting about the cranes. I always use that as a sign for a cities growth. I remember being in Nashville, I think it was 2020 or 2021 and I could not believe the number of cranes I saw. I think I counted 10.

I'm not convinced we will see a collapse in residential real estate if only because there is still less supply than there should be. If it does happen my guess is that it will be as a result of an increase in job losses, business closures, and things that affect people's ability to make house payments. But who knows.

93 sats \ 7 replies \ @Undisciplined 22 Mar

A "collapse" could be compositional. People have been moving in extremely large numbers out of very expensive major metros into relatively inexpensive mid metros.

Declines in major metro home prices could easily dwarf gains in mid metro home prices, since the baseline is so much higher.

64 sats \ 6 replies \ @grayruby 22 Mar

Collapse in real terms likely. Nominal not so sure.

We aren't allowed to have recessions anymore remember. Let alone massive property value collapses that will affect the banking system. It all gets made whole in nominal terms in my opinion. At least the stuff the important people own. I am sure some folks get taken out to the woodshed like the regular folks that lost their homes in 2008.

83 sats \ 5 replies \ @Undisciplined 22 Mar

Maybe they'll give property holders a tax credit if they donate those homes to the homeless.

Bail out the real estate owners, then repossess the properties that don't pay their taxes and auction them off. That way taxpayers get fleeced into eating the losses under the guise of a well meaning program to "house the unhoused".

31 sats \ 4 replies \ @grayruby 22 Mar

Clever. You should be a democratic strategist. I know you are a fan of AOC since she joined the Raiders, maybe she has a job for you on her team.

160 sats \ 3 replies \ @Undisciplined 22 Mar

I'll check. My profession is largely dedicated to rationalizing stupid government policies. It's not a skillset I value, but I do have it.

41 sats \ 2 replies \ @grayruby 22 Mar

Your profession must afford you a flexible schedule so you can wash trade comments and zaps on SN with me and siggy all day. Siggy is fully retired, I am partly retired. You are doing some real PoW managing your job and a p/t SN job.

50 sats \ 1 reply \ @Undisciplined 22 Mar

Are you familiar with the term "sinecure"?

Also a prominent feature of my profession

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210 sats \ 0 replies \ @orthzar 25 Mar

My employer is deeply tied to the commercial real estate market. When that market crashes, I am guaranteed to be laid off. I've been expecting it for a few years, but it is for sure going to happen this year or next. It mostly depends on Federal policies and the timing in the terms of loans.

I'm still waiting for the shoe to drop on residential real estate.

Go read the terms for variable rate mortgages and focus on the terms that state how/when the rates adjust up/down. The prime interest rate in the US rose last year, so it'll take time for variable rate mortgages to adjust up. Variable rate borrowers could will see a 2x-4x increase in their monthly payments, which would lead to widespread foreclosures within 6 months (depends on how much savings and credit each household has left). That is the most likely thing to cause a residential real estate crash.

There is a very small chance that the stock market could crash before the residential real estate market crashes, in which case a lot of people would lose their jobs and then their homes. Not sure which woudl be worse.

There is also the possibility of a national eviction moritorium (or even multiple eviction moritoria at the state level), like Trump ordered in 2020. That would be worse, because it would lead to bail-ins. But it would make the then-president look like a hero to a lot of people.

and the overbuilding continues

Imagine pouring millions into a building on the eve of a crash that will be second only to the Great Depression. A lot of people are living the high life, simply because they don't remember what happened 2007-2013, and it's tragic.

10 sats \ 0 replies \ @Satosora 22 Mar

Last couple of years were the covid era. Everyone was FOMO'ing. So many people migrated out of crowded cities. As big banks close, credit unions will get more strict. Might be time to get an account for your fiat while you have a chance.

0 sats \ 0 replies \ @Bell_curve 23 Mar

Commercial real estate loans gone bad in New York

Why is the attorney general not investigating for possible fraud?

0 sats \ 0 replies \ @Bell_curve 22 Mar

Overbuilding means more supply at lower prices

Regarding commercial real estate loans, banks should sue the borrower for fraud

0 sats \ 0 replies \ @ch0k1 22 Mar

The same old reason for financial crisis...