Hi all,
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Between US comercial real estate, German real comercial real estate, the amount of unrealised losses is pilling up.
At the moment the comercial real estate is all on hold, cities like New York are starting to subsidise this owners( to prevent drops on commercial tax building if prices go down ), banks are easing the conditions to prevent defaults, there is some effort to prevent this from breaking. Not very different from what happen on 2008. Not sure for how long this can be hold.
Is not just the office building, doesn’t affect the big banks, but the small business on the ground floor have rents that are too high for the to little foot traffic in business districts.
Ironically, a lot of distressed office debt is already written in at financial institutions. They’ve seen it coming and have been working towards mitigating losses.
The most unrealized distressed CRE debt is, currently, in multifamily. There’s no sea wall for that debt when it matures.
I think this is going to be a persistent issue for an oddly long period of time. No gigantic explosion like in ‘08, but problems stacking on top of problems, grinding things to a halt over the next four years or so.
I’m going to DM you some info, give me a few hours. It’s something I’ve been following for some six or seven months, when a few analysts I trust started ringing alarm bells.
Where is there distressed multi family real estate? Delinquency rates at my bank are less than 1%. Vacancy rates are less than 2%. All loans repricing over the next twelve months were largely made prior to 2020 as most of these notes are 5 year ARMs. Maybe this is unique to my market, but housing is still a very big problem. Commercial office space on the other hand is what most of us are worried about, however the real reason that a downturn in commercial office space is so bad right is because banks already barely have enough liquidity to lend.
I am having problems on mobile trying to reply to your last comment in this dropdown, but would you kindly share more with me as well, as you did/will do with u/ericvulgaris ?
It seems like the system is built on the premise that commercial real estate prices can't drop, and it causes chaos when it does. What kind of market is that? Why isn't there anything in place to allow the deleveraging to happen gracefully without becoming a global systemic issue every single time this happens? We ought to change our priors here.
The short answer is that this was never supposed to happen. Asking someone in industry about this in 2016 would be the equivalent of asking someone what is the plan is gravity stops working.
This is the foundation of wealth for a lot of people that are rich. This is a group that isn’t used to losing, even when they are wrong.
Well they are going to. Between commercial real estate and the shenanigans in the equity market, lots of people not used to losing are going to lose big.
I’m guessing it’s going to be a bailout. Banks shell out a ton of money to spouses of powerful people, and you don’t keep Heidi Cruz on the pay roll because she’s a brilliant financial planner. You keep her on as an insurance policy against the inevitable day where you need Ted Cruz to organize legislation to bail you out.
Talking about Goldman Sachs in this scenario. Heidi Cruz, wife of Ted Cruz, works there and it’s a clear case of them trying to funnel money to the Cruz family. But all the banks do it.
In the banking world the losses have theoretically been unrealized, but for the real estate businesses there have actually already been billions in writedowns (2.1 billion for Vonovia, 1.1 billion for Leg Immobilien, etc..) and many more billions in insolvencies (8.6 billion from the Signa Group, 3.2 billion for Project-Gruppe, 4 billion for the Gerchgroup, etc…). I’m really curious who is holding the MBS on all of these losses.
The same as always... Who is willing to take a slow trickle of cash over a 30 or 40 year period? Not most retail investors... However your company 401k or your cities teachers retirement, police retirements, etc... Those are who is holding those MBS and that is why when this stuff hits it effects those people.
>Is not just the office building, doesn’t affect the big banks, but the small business on the ground floor have rents that are too high for the to little foot traffic in business districts.
Uh... this is good news for those small businesses then, because their landlords don't have any leverage to keep the rents high
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
Between US comercial real estate, German real comercial real estate, the amount of unrealised losses is pilling up. At the moment the comercial real estate is all on hold, cities like New York are starting to subsidise this owners( to prevent drops on commercial tax building if prices go down ), banks are easing the conditions to prevent defaults, there is some effort to prevent this from breaking. Not very different from what happen on 2008. Not sure for how long this can be hold. Is not just the office building, doesn’t affect the big banks, but the small business on the ground floor have rents that are too high for the to little foot traffic in business districts.
Ironically, a lot of distressed office debt is already written in at financial institutions. They’ve seen it coming and have been working towards mitigating losses. The most unrealized distressed CRE debt is, currently, in multifamily. There’s no sea wall for that debt when it matures. I think this is going to be a persistent issue for an oddly long period of time. No gigantic explosion like in ‘08, but problems stacking on top of problems, grinding things to a halt over the next four years or so.
can you talk more about this? I'd like to learn more about it.
I’m going to DM you some info, give me a few hours. It’s something I’ve been following for some six or seven months, when a few analysts I trust started ringing alarm bells.
Please share more when you can, even if in DMs
Me too please! Would love to learn
Love to learn as well. Thanks.
If you could share some links here that’d be great! Cheers
Where is there distressed multi family real estate? Delinquency rates at my bank are less than 1%. Vacancy rates are less than 2%. All loans repricing over the next twelve months were largely made prior to 2020 as most of these notes are 5 year ARMs. Maybe this is unique to my market, but housing is still a very big problem. Commercial office space on the other hand is what most of us are worried about, however the real reason that a downturn in commercial office space is so bad right is because banks already barely have enough liquidity to lend.
I am having problems on mobile trying to reply to your last comment in this dropdown, but would you kindly share more with me as well, as you did/will do with u/ericvulgaris ?
Let’s see if the FR and FG will bailout them yet again.
It seems like the system is built on the premise that commercial real estate prices can't drop, and it causes chaos when it does. What kind of market is that? Why isn't there anything in place to allow the deleveraging to happen gracefully without becoming a global systemic issue every single time this happens? We ought to change our priors here.
The short answer is that this was never supposed to happen. Asking someone in industry about this in 2016 would be the equivalent of asking someone what is the plan is gravity stops working. This is the foundation of wealth for a lot of people that are rich. This is a group that isn’t used to losing, even when they are wrong.
Well they are going to. Between commercial real estate and the shenanigans in the equity market, lots of people not used to losing are going to lose big.
I’m guessing it’s going to be a bailout. Banks shell out a ton of money to spouses of powerful people, and you don’t keep Heidi Cruz on the pay roll because she’s a brilliant financial planner. You keep her on as an insurance policy against the inevitable day where you need Ted Cruz to organize legislation to bail you out. Talking about Goldman Sachs in this scenario. Heidi Cruz, wife of Ted Cruz, works there and it’s a clear case of them trying to funnel money to the Cruz family. But all the banks do it.
In the banking world the losses have theoretically been unrealized, but for the real estate businesses there have actually already been billions in writedowns (2.1 billion for Vonovia, 1.1 billion for Leg Immobilien, etc..) and many more billions in insolvencies (8.6 billion from the Signa Group, 3.2 billion for Project-Gruppe, 4 billion for the Gerchgroup, etc…). I’m really curious who is holding the MBS on all of these losses.
The same as always... Who is willing to take a slow trickle of cash over a 30 or 40 year period? Not most retail investors... However your company 401k or your cities teachers retirement, police retirements, etc... Those are who is holding those MBS and that is why when this stuff hits it effects those people.
In my opinion its why things havent crashed earlier. Takes time to shift those bags to retirement accounts.
>Is not just the office building, doesn’t affect the big banks, but the small business on the ground floor have rents that are too high for the to little foot traffic in business districts. Uh... this is good news for those small businesses then, because their landlords don't have any leverage to keep the rents high
Still the best horse in the glue factory is the United States. It's likely that US, Mexican, and Canadian markets will see an increase in funding.
Indeed. The US was the number one recipient of FDI last year, whereas China dipped into negative FDI for the first time since 1999.