patrick.net

https://financialpost.com/real-estate/property-post/work-from-home-mortgage-securities-default-risk-moodys

Remote-work trend creates mortgage-backed securities default risk, Moody's warns

The popularity of working from home in the U.S. is cutting into office tower revenue to the point that it is putting some commercial mortgage-backed securities at risk of default, according to a new report from the credit rating agency Moody’s.

https://twitter.com/KobeissiLetter/status/1646256473733750788?ref_src=patrick.net

I wonder if Portland will experience also an increase in vacancies as businesses shut down or move out of town.

79% of Portland businesses have been vandalized.

.

https://www.zerohedge.com/markets/dominos-falling-brookfield-defaults-161-debt-dc-office-buildings

see above link ...commercial real estate in washington dc is taking a major beating (just like elsewhere like san fran and silicon valley)...

a friend of mine who works at Coast Guard headquarters as a support contractor said that the biden admin is trying to get the agencies and departments to return workers to the office ...

my friend said that the mayor of washington dc is pushing the biden admin to do this especially since washington dc businesses like restaurants and cafes have lost a lot of business due to work from home ...

ad says

my friend said that the mayor of washington dc is pushing the biden admin to do this especially since washington dc businesses like restaurants and cafes have lost a lot of business due to work from home ...

Once people realize they don't need to go to a city, they know they don't want to go back. Does anyone like average, Applebees type food just at some "fancy" restaurant with a high lease at $18-$20 for an average burger at lunch? A basic entree at dinner that's $50-80. That's what cities are.

Did trivia at the local place last night. I just had some beers. 5. $12.50 total. I drink cheap beer. One of our friends had a prime rib sandwich and 3-4 bourbon drinks. $25. These are the same beers you can get in a city and bourbon. Not house bourbon either. Don't really go out to eat myself anymore as new food messes with my gut at any place. But the place we were at was Applebees type food to slightly better on certain items.

In a city my beer bill would have been double and likely triple. My buddies bill would have been $60-70 because it was "prime" rib and the bourbon. It's one thing to visit a small town, it's another thing to live in one. You start to realize why the fuck was I paying so much for everything AND dodging homeless, shit and needles.

Only caveat is you'll need a nice or at least comfortable car. You'll be in it a lot. But your house/rental will be 50% less and bigger.

Most of my story is 1 get out of cities, but 2nd with regards to commercial real estate, offices specifically, it's toast. Small companies in smaller buildings aren't going to renew their lease. Banks won't keep lending if the landlord/owner doesn't have the incoming income/rent to cover debt. The massive buildings get different terms, but it's usually 5 year commercial paper with annual review. We're entering a phase where a lot of reality in the office space market is going to come out.

Some of this did play out during the housing bust to an extent with offices. But this is a different animal when we told people to stay home for 2 years besides, first responders, medical, infrastructure workers and food workers. Sorry for weird sentences and any typos. Weirdly out of it this morning and just don't care..

https://www.bizjournals.com/sanfrancisco/news/2023/04/18/wework-loan-default-s-f-office-building.html

WeWork venture defaults on loan for San Francisco office tower at 600 California

zzyzzx says

https://www.bizjournals.com/sanfrancisco/news/2023/04/18/wework-loan-default-s-f-office-building.html

WeWork venture defaults on loan for San Francisco office tower at 600 California

Nooooooooo!

https://fortune.com/2023/06/01/commercial-real-estate-office-crash-is-here-says-cre-ceo/amp/

‘What’s happening in the office sector is apocalyptical’: This commercial real estate CEO says the crash has already started

Good video...NYC will likely be a going concern if property taxes decline.

https://www.youtube.com/watch?v=Yafvra3AN4g

https://www.axios.com/2023/06/13/companies-aggressive-return-to-office

Companies get aggressive on return-to-office

My company just added an extra day back in the office per week and I will share their very good reasoning to help you understand. “We are doing this because everyone else is doing it.” -management.

https://finance.yahoo.com/news/blackstone-reit-announces-major-asset-180808646.html

Blackstone REIT Announces Major Asset Liquidations As Redemption Requests Continue

Government's latest plan to help struggling commercial property owners: charge people 20 bucks just to go into the city.
https://www.foxnews.com/us/new-york-city-receives-federal-approval-charge-drivers-attempt-reduce-congestion

https://finance.yahoo.com/news/analysis-commercial-real-estate-investors-230518576.html

Investors in commercial property are used to riding out storms. This time it's different

https://thedailyscroll.substack.com/p/what-happened-today-september-7-2023?r=6gdz

Roughly 20% of the banking sector’s deposits are exposed to troubled commercial real estate assets, amounting to $3.6 trillion worth of risk just as the commercial real estate sector is collapsing—and quickly. That’s according to a new Wall Street Journal analysis that finds commercial real estate could become the next sector to trigger an economic collapse reminiscent of the 2008 housing market crisis. In the period between 2015 and 2022, with interest rates low or non-existent, banks large and small went on a lending spree to landlords, doubling their outstanding loans in just seven years. But the problem is, the commercial real estate sector is in deep trouble. Commercial property prices are down 16% since last February and are expected to fall even more as transactions begin to pick up again in earnest after a pandemic lull.

If real estate investors can’t pay the banks back—partially due to higher interest rates—the banks stop making real estate loans, which drives the price of real estate down, which makes it harder for investors to pay them back. This “doom spiral” will likely be put to the test over the next year, especially as $900 billion in loans will need to be paid off or refinanced by the end of 2024.

Scott Rechler, chief executive of real-estate investor RXR, told the WSJ that the situation is “creat[ing] a backup that will eventually overflow on the commercial real-estate markets and on the banking system.” And Blockworks macro researcher Jack Farley tweeted on Saturday, “I have it on good authority that 84% of office CMBS [commercial mortgage-backed securities] were not paid off in August.”

Worthwhile read...https://seekingalpha.com/article/4632390-blackstone-mortgage-trust-valuation-is-getting-risky

https://finance.yahoo.com/news/kevin-o-leary-says-coming-230043170.html

Kevin O’Leary Says a Coming Real Estate Collapse Will Lead to ‘Chaos’

Which is about commercial real estate, even though title doesn't mention it specifically.

zzyzzx says

https://finance.yahoo.com/news/kevin-o-leary-says-coming-230043170.html

Kevin O’Leary Says a Coming Real Estate Collapse Will Lead to ‘Chaos’

Which is about commercial real estate, even though title doesn't mention it specifically.

cre collapsing doesn’t bother me one bit. but knowing our fucking government of the wealthy assholes, they’ll bail out the wealthy at expense to middle class to rescue outdated business model. that’s what they did every other time.

Signature Bank's Commercial-Property Loan Sale Expected to Draw Bids at 40% Below Face Value, Reflecting Eroding Property Prices

https://wallstreetai.substack.com/p/november-9th-2023-financial-outlook#%C2%A7signature-banks-commercial-property-loan-sale-expected-to-draw-bids-at-below-face-value-reflecting-eroding-property-prices

https://www.cbsnews.com/news/real-estate-owners-saddled-with-half-empty-offices-as-hybrid-work-continues-60-minutes-transcript

The reality is the price of office buildings is tanking, as much as 40% since the pandemic. Uptown at Columbia Business School, Stijn Van Nieuwerburgh, a professor of real estate, has modeled out the impact of hybrid work on pricing…and calls it a train wreck in slow motion.

Prof. Stijn Van Nieuwerburgh: And this is just the beginning. And the reason it's just the beginning is because there's a lot of office tenants that have not had to make an active space decision yet. "Do I want to renew this space? Do I wanna vacate? Maybe I sign a new lease for half as much space." This is what tenants have been doing for the last three years. So when you take all of those current and future declines of cash flows into account, we end up with about a 40% reduction in the value of these offices.

https://www.dailymail.co.uk/news/article-13071753/san-francisco-offices-vacant-ian-jacobs-reichmann-real-estate.html

Real-estate tycoon looks to buy $900MILLION worth of San Francisco office space as companies and residents flee downtown amid homelessness, crime and work-from-home
Ian Jacobs, 47, has decided to purchase an estimated $900million worth of office space in San Francisco
The heir of the Reichmann real-estate dynasty has set up $75million in commitments for the new business venture
The Bay Area has experienced a drastic jump in office vacancy

The start of a new cycle as Ian Jacobs (see above post) and the rest come in and buy at cheap or fire sale prices.

Then the city and state governments clean up the city.

Companies increase presence in the city.

Price value increases for real estate as a result.

https://www.wbur.org/news/2024/02/15/boston-tax-shortfall-empty-offices-space-report

Report: Boston faces more than $1 billion tax shortfall due to empty offices

@Eman any interesting commercial deals coming up in search of investors? i’m interested, serious post. i know you are a smart guy with track record of good decisions.

FortwayeAsFuckJoeBiden says

any interesting commercial deals coming up in search of investors? i’m interested, serious post. i know you are a smart guy with track record of good decisions.

I wouldn't touch commercial office space right now. It's dying. Certain sectors like medical need offices, but most businesses really don't anymore.

You gotta have $$$$$ but warehouses are your best bet if you are going to invest personally and not through a REIT or publicly traded company. Which goes back to remote working. IL is not growing in population. Yet massive warehouses pop up monthly along the major highways here. Storage of inventory is a massive factor now even for the minor players.

I wouldn't touch office space now or for the foreseeable future. My wife grosses $6M/yr in cash sales and hasn't stepped foot in her office in 5 years maybe? 50-60% margins. Offices were a "marketing" expense in a sense, to make you look good when a client visited. It's just not worth it. Only upside is repurposing the space which is risky. Trampoline indoor park for kids and birthdays. But that's a one off thing. Industrial, manufacturing and warehouse is where the money is going. Definitely not office even if there's a price collapse.

Commercial RE needs to market to the government and get some of that sweet sweet illegal invader money. They could house the invaders in those places. Just let them sleep on the floors and they can take hand towel baths in the sinks of the bathrooms. Give each floor a bunch of hot plates and microwaves and some refrigerators. Get sum o dat sweet sweet invader money.

wookiee warehouses out here cost more than I can afford. acre costs about 200k, and construction cost is close to a million. used to be less than half btw. small businesses who had those built while back just saw values double and triple over few years. and weird shit is their rent doesn’t bring enough to cover any loans.

life lesson i learned is when shit collapses you need to have cash ready to pull trigger fast before window closes. i feel that moment is coming and i’m actually prepared.

Following up. Restaurant commercial might have some upside with the work from home deal. It's where my wife does most of her business. Not in an office. I think that ship has sailed at this point. She meets everyone at a restaurant or coffee shop. This is all anecdotal but I generally get it right. I wouldn't touch anything in the office space regardless of hearing the come back to the office news. Employees will push back. And the space after leases are up won't be viable for the business and they'll leave.

FortwayeAsFuckJoeBiden says

Eman any interesting commercial deals coming up in search of investors? i’m interested, serious post. i know you are a smart guy with track record of good decisions.

Hi Fort Wayne,

I’m always looking at deals, but have been doing it half-hearted as the market is in a transition, not sure for the better or worse.

Remember the 40-unit deal by SJSU I mentioned in the other thread? Seller paid $13M basically for the land a couple years ago. Got it entitled to build a 23-story 168-unit high rise condominiums. The market churned; numbers no longer make sense to build; bridge loan is coming due; and seller wants to sell before getting drowned with high rates. Seller initially wanted $12M, and eventually came down to $10M. Now, seller will sell at $9M. Our latest offer was $8M. We can come up a couple hundred thousands, but not much more.

My math suggests we can get all our equity back in 5 years. Then let the building do it things with cash flow and principal pay down. In the next cycle, be it a decade or 15 years, the next developer will pay us handsome money for it. Assume 3% annual growth/appreciation…. on average, 6.6% is the average for Bay Area real estate, we’ll make out like bandits.

We’ll raise money with a very close group of friends and relatives if we get the deal. Not going beyond this sphere. Thanks for your trust and compliment.

Can’t share much other this line from yesterday at the moment.

A Chicom company abandoned these high rises in Los Angeles : https://en.wikipedia.org/wiki/Oceanwide_Plaza

Now they are victim to graffiti vandalism : https://laist.com/news/downtown-los-angeles-graffiti-taggers-high-rise

Wonder if these high rises will get bought out by an American firm or organization and will be finished.

What's your opinion on these abandoned high rises, Eman ?

AD says

A Chicom company abandoned these high rises in Los Angeles : https://en.wikipedia.org/wiki/Oceanwide_Plaza

Now they are victim to graffiti vandalism : https://laist.com/news/downtown-los-angeles-graffiti-taggers-high-rise

Wonder if these high rises will get bought out by an American firm or organization and will be finished.

What's your opinion on these abandoned high rises, Eman ?

The lender(s) will have to foreclose and take a hit. A developer will buy it for the right price and complete it. High cost to build, high interest rate, and the weak housing environment started in the 2nd half of 2022 had basically killed these projects.

During time of crisis, liquidity = value. Our regional/portfolio lenders require us to submit our Personal Financial Statement (PFS) and Schedule of Real Estate Owned once a year to verify we’re still in good standing financially.

Unlike residential real estate, every step I take in commercial real estate has to be measured. No reason to take on unnecessary risk at this point in my life and create a fiasco. People who ask for the repeal of Prop 13 actually want to see others suffer and turn people’s life upside down without putting thoughts into it. They’re thinking like the communist. Be very careful of them.

In my circle of acquaintances, we try to help everyone get ahead regardless of our political differences. Real estate and finance are our daily exchanges. We talk about politics and religions, but we know where everyone stands. We don’t let these ruin our friendship and business ventures.

Eman i understand, if you guys short half mil, you got an interested investor here.

FortwayeAsFuckJoeBiden says

Eman i understand, if you guys short half mil, you got an interested investor here.

Consider open a money market account with Fidelity or Interactive Broker and make 5-5.25% safely for not doing anything if you haven’t done it already. The money is liquid and earning income while you’re looking for a deal. That’s like $2k/month. That can pay for a lot of nice lunches and dinners with your spouse.

Good luck Fort Wayne 🤞

Seeing the debate on both sides why Trump should be fined $357M, or whatever, for inflating the value of his assets, etc…. The people who are anti-Trump are clueless IMO. Banks do their due diligence before they lend. They ask for bank statements, tax returns, etc… They hire an appraiser to assess the value of the asset/collateral and only lend a portion of the loan amount based on the appraised value, not whatever Trump claims. Also, the banks will verify that his cash flow/income can support the debt in addition to his living expenses, etc….

Eman says

People who ask for the repeal of Prop 13 actually want to see others suffer and turn people’s life upside down without putting thoughts into it. They’re thinking like the communist. Be very careful of them.

I do not agree at all. I do not live in Cali but it blows my mind how it is fair for people to be taxed differently. Can a person in California lock in prices for anything else? Can I lock in the price of gas when I bought my first car back in 1980? Or lock in my car insurance bill from 1980? Why not, seems as fair as locking in my property tax bill.

GNL says

Eman says

People who ask for the repeal of Prop 13 actually want to see others suffer and turn people’s life upside down without putting thoughts into it. They’re thinking like the communist. Be very careful of them.

I do not agree at all. I do not live in Cali but it blows my mind how it is fair for people to be taxed differently. Can a person in California lock in prices for anything else? Can I lock in the price of gas when I bought my first car back in 1980? Or lock in my car insurance bill from 1980? Why not, seems as fair as locking in my property tax bill.

If you believe people move every 7 years, then Prop 13 is not an issue.

If you want to ban Prop 13, I’m all for it. However, there must be a process to do that. You have to phase it in over a period of time while. special assessments, which are included in the property taxes at this time, which were not there pre-Prop 13 must be phase out.

As I previously mentioned, I’m fine with banning or phasing out Prop 13. Give me a proposal. Cricket. Banning Prop 13 without phasing out special assessments AND getting rid of rent control and all the city fees (these didn’t exist before rent control and Prop 13) is THEFT.

Everyone is giving a fair chance to but NOW and keep Prop 13 on their property taxes.

I came to this country without speaking the language. I bought my first house without knowing anything about Prop 13. Wife and I bought our 2nd house without knowing about Prop 13. We bought our 3rd house, for 4.5x the amount of our first house and 3x our 2nd house, and pay a lot in property taxes each year. We don’t complain. Everyone is giving a fair chance to start NOW. Stop whining and start working and getting ahead

Just looked at this deal last week. 12 units. See what rent control does to this building? The tenant who is paying $523 has been living here for 47 years. See how the 5 high paying tenants are subsidizing for the 7 low paying tenants?

Let’s ban Prop 13. Let’s also ban rent control. Let’s also ban the city rent control housing department and ban all the associated fees that go with it. Oh, and don’t forget to ban all the special assessments that the city has been tagging on the property taxes all these decades. Let property owners have their rights and charge these tenants market rents. Does this proposal sound fair?

Eman says

If you want to ban Prop 13, I’m all for it.

But you said people who want to eliminate Prop 13 are thinking like the communists.

GNL says

Eman says

If you want to ban Prop 13, I’m all for it.

But you said people who want to eliminate Prop 13 are thinking like the communists.

They are because they don’t offer solutions. They just want to ban it. TAKE, TAKE and TAKE. That’s what communists do.

I asked for a proposal/solution but none was given.