U.S. Commercial Real Estate Is Headed Toward a Crisis

That's one market that's never coming back to its former glory IMO, especially with WFH showing some real staying power in the tech industry. Give it 10 years and I predict virtually all desk jobs will be WFH or hybrid (ignoring, for a moment, whatever effects LLMs will also have on typical desk jobs)

That said, yes FANG and a few of the big big corporations are adamantly trying to get/keep people back in the office. Many of these companies also just finished building multi-billion dollar campuses. Imagine the heads that will roll when they finally admit to themselves that these campuses were a total waste of money, and don't even have much re-sale value because no one needs corporate CRE anymore.

This is more true than I think a lot of people realize, even where I am in fairly rural east coast USA, many of the office buildings in town have been vacant since the pandemic. No one needs these structures anymore. Even traditionally in-person venues like doctors' offices are slowly starting to shift a double digit percentage of their appointments to video calls. The writing is on the wall.

sell sell sell

It's been heading towards a crisis ever since Covid. Depending on when the Fed lowers rates, the end result will be pushed off for a few more years, but you're going to see lots of buildings given up on. My personal belief is that there's a lot of negotiation behind the scenes as both banks and property owners work out deals to make it seem not as bad. There's also the issue of cities like NYC who rely heavily on office building property taxes for funding.

When looking for a cause, none of these bankers or economists seem to get that it can also be seen as a consequence of using debt to fuel the economy. The 1990s were a fairly good time economically in the US, but interest rates were quite a bit higher than people are used to now. Maybe they should figure out why that is, since turning the knob all the way down to zero isn't really viable long term.

There needs to be a large pool of government-backed capital specifically for commercial to residential redevelopment and fast-track zoning approvals for this (somewhere along the line of City of Yes proposal in NYC).

Make it 4-5%, contingent upon (or give additional subsidies for) making significant percentage affordable rentals. Use the cash to cut the centers out of the building to daylight the large floor plates.

Residential rents for much more/ft than commercial so shouldn’t be a problem floating existing commercial mortgages. Maybe there’s even a program to borrow against the future higher stream of income to get non-performing loans current so these banks hold the existing paper instead of taking the write down.

I have a basic question, because I don’t know much about real estate. If we have a brewing commercial real estate crisis, and we have a long-standing housing crisis, why isn’t one the solution for the other? Can’t some real estate developer buy an office building on the cheap and convert it into housing and make a profit? I imagine that local zoning and building codes may not allow for that, but it seems like there’s enough urgency in this issue to resolve those.

Crisis for whom? This is how markets work... Let them work.

> There’s Trouble Brewing

> The clock is ticking

> a reckoning

> full-blown financial crisis

I've been hearing about this since at-least 2021. How long will it take for this 'crisis' to come to fruition.

Every morning and evening I watch the sun shine through empty office buildings that were just recently completed. I'm not sure how economical it is to keep the lights on.

Both CRE and RRE are doing the Wile E. Coyote levitating thing for now, mostly due to banks and investors being able to delay a reckoning. Used cars got hit first because it's harder to pretend they are a good asset to hold. But it's coming. Enthusiasts of converting CRE will be disappointed because RRE is already overbuilt in some boomtowns. Only truly abandoned CRE will be economical to convert, and that will further delay widespread conversion. The earliest projects will be selected for low risk. The bottom is somewhere below pre-pandemic prices.

This article seems to miss that small and regional banks are less likely to hold the type of assets that are in real trouble. The big problems are the giant downtown office towers. Those loans are more likely to be held by big banks. Or at least I imagine, I don't have any data to back that up

This is a good thing because the rent seekers who own these properties are unwilling to lower their lease terms which is strangling businesses.

There are two tiers of businesses now, those that rent their space and have expensive prices because of it and those that own and don't have to pay rent which shows off as lower prices.

A CRE crises will not affect us the way the GFC did . We may see a few banks go belly up however.

You can feel better by looking at Canada though.

Ah ah ah.