Posted on 07/24/2023 3:43:34 PM PDT by Kaiser8408a
Where is the bottom for commercial real estate (CRE)?
Starwood Capital Group’s Barry Sternlicht recently told Bloomberg’s David Rubenstein about the ongoing crisis in the commercial real estate sector, equating it to a severe “Category 5 hurricane“. He cautioned, “It’s sort of a blackout hovering over the entire industry until we get some relief or some understanding of what the Fed’s going to do over the longer term.”
Currently, the biggest problem in the CRE space is sliding office and retail demand in downtown areas. Couple that with high-interest rates, and there’s a disaster lurking for building owners. According to Morgan Stanley, the elephant in the room is a massive debt maturity wall of CRE loans that totals $500 billion in 2024 and $2.5 trillion over the next five years.
Senior markets editor for Bloomberg, Michael Regan, chatted with John Fish, who is head of the construction firm Suffolk, chair of the Real Estate Roundtable think tank and former chairman of the board of the Federal Reserve Bank of Boston, in the What Goes Up podcast to discuss the biggest problems in the CRE market.
Fish warned that “capital markets nationally have frozen” and “nobody understands value.” He said, “We can’t evaluate price discovery because very few assets have traded during this period of time. Nobody understands where the bottom is.”
Beginning Of CRE Firesale? Baltimore Office Tower Dumped At 63% Discount CRE Panic Hits Baltimore As Second Office Tower Dumped At 69% Discount
Sooooo, Powell and The Fed will likely raise rates this week. And maybe a few more times over the next few months. And The Fed remains defiant about taking away the Covid monetary stimulus.
(Excerpt) Read more at confoundedinterest.net ...
I can help out here. The BOTTOM is when office space is cheap enough for developers to buy and convert to living quarters...and this price is based, in part, tied to the conditions of where the office is located. If located in “The City”, then the sales/rental price will be far lower than the suburbs, as the yuppies will not be nearly as willing to live there, as they were only several years ago, when violent felons were considered people that should be removed from society.
Not much. The CRE situation is just one facet of the looming apocalypse:
https://market-ticker.org/akcs-www?post=249340
Nobody does rant like Denninger, but he's usually right.
Let them crash.
They knew the risks.
The largest banks, about which the Fed is concerned, probably will have less exposure to city-specific commercial real-estate. And if they do, the Fed will make sure there’s a dozen programs available to bail them out.
The same can not be said for local or medium size banks.
If one of them gets into trouble, the Federal Reserve will be there to help them buy up the assets for pennies on the dollar.
Just look at JP Morgan’s buy-out of First Republic. 80% of losses were guaranteed by Fed.gov (ironically, not the Federal Reserve)
It pays to be a member of America’s oligarchy.
Good question. At least with the housing crisis there were buyers available. With CRE, who knows? Maybe a use change coming up?
Imagine all the pension funds and insurance companies etc invested in CRE go8ng down the tubes with them.
Your 401 will take a hit but that will be made up in other sectors.
Losses? They’re making tons of money on that deal.
The bank’s losses ...
Why not put all the illegal aliens and “refugees” currently getting “free” housing from the Feds that is exploding home prices into these buildings?
Some people moved to the city center so they could sleep in and walk to their jobs. If the jobs are remote that attraction goes away. There are still folks that like walking to the bars .
The three essential rules of real estate haven’t died. Commercial spaces are still being built. They are just not being built where there is crime, homelessness, high taxes and poo on the sidewalks.
The FED is doing precisely what their charter says they should do.
They are responding to the war on fossil fuel and American Recvery Act and Inflation Reduction Act. Those 3 actions of Biden caused this inflation. Biden is to blame, not the Fed.
Th Fed is just trying to minimize the damage from Biden’s actions. Blame Biden.
The FED is doing precisely what their charter says they should do.
They are responding to the war on fossil fuel and American Recvery Act and Inflation Reduction Act. Those 3 actions of Biden caused this inflation. Biden is to blame, not the Fed.
Th Fed is just trying to minimize the damage from Biden’s actions. Blame Biden.
“Some people moved to the city center so they could sleep in and walk to their jobs. If the jobs are remote that attraction goes away. There are still folks that like walking to the bars .”
Agree, there will always be some market for condensing people together...just not enough to support nearly as many people as was the case when conditions were good (pre-pandemic, and relatively safe).
Government will expand to fill the space available.
One more factor: huge writedowns of real estate will lead to reduced income tax liabilities for the companies involved.
It is fairly cheap to convert office space to very large apartments.
It is not cheap to convert office space to many small apartments.
Prime residential space might quite often go for around $300/square foot in a major city, but it can go for over three times that in some places.
SOHO industrial space was very affordable when converted to residential about six decades ago.
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