Commercial real estate values have already dropped 11% in the last year, with some properties selling for a 90% loss. This commercial real estate collapse is going to cause problems for the US Banking Sector.
Banks in America today hold nearly $3 trillion in Commercial Real Estate Debt. That’s twice as much as what Subprime Debt was in the 2008 crisis. And now those landlords for commercial properties are going into default.
Particularly on office buildings, where the default rate is surging. Asset managers like Brookfield and Blackstone are handing back office properties to their lenders because it doesn’t make sense for them to refinance given lower occupancy rates and higher interest rates.
As more of these mortgages go into default, there will be increasing pressure on banks to cut back new lending and to hold more cash. Which could trigger the existing credit crunch in the US economy to get worse. A worsening credit crunch would result in more layoffs and bankruptcies, and cause unemployment to rise.
In addition to office buildings, apartments and multifamily are also getting hit hard. Values in this sector are down by -12.5% already, the worst-hit commercial asset class. The reason apartment values are going down so much is because landlords bought building at aggressively low cap rates during the pandemic.
Now the loans on those properties are coming due at much higher interest rates, which is result in distress. Some landlords are already defaulting on their mortgages, while others are refinancing at higher rates and losing money.
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BREAKING: Recession News
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Title: The 2023 Recession Strikes Commercial Real Estate: A Drastic 90% Price Drop
Introduction
The year 2023 brought with it an economic downturn that has been described as the worst recession since the Great Depression. The devastating impacts of this recession have had far-reaching consequences, and perhaps one of the hardest-hit sectors has been commercial real estate. In a shocking turn of events, prices have plummeted by an astonishing 90%, leaving the industry grappling with uncertainty and significant challenges.
The Unforeseen Crisis
The recession that hit the commercial real estate sector in 2023 was largely unforeseen, catching even the most seasoned experts off guard. Prior to the recession, the industry had been experiencing steady growth, with soaring property values and robust market activity. Unfortunately, this upward trend turned into a steep decline, leaving many investors and developers reeling from the sudden turn of events.
Drivers of the Decline
Several factors have contributed to the precipitous drop in commercial real estate prices. First, the recession triggered a massive increase in office space vacancies and reduced demand for retail spaces, as businesses downsized or closed altogether. The shift towards remote work, accelerated by the pandemic, also played a significant role, as many companies opted for remote operations, resulting in reduced demand for office spaces.
Furthermore, the hospitality and tourism industries were hit particularly hard, leading to an alarming number of hotel foreclosures and dwindling occupancy rates. This downturn also affected other commercial sectors such as restaurants, shopping centers, and recreational facilities, further exacerbating the crisis.
Implications for Investors and Developers
The 90% drop in commercial real estate prices has left investors and developers grappling with significant financial losses. Many face debts that exceed the current value of their properties, making it challenging to recover their initial investments. Moreover, numerous projects have been put on hold due to the lack of investor confidence, further negatively impacting job creation and economic growth.
Furthermore, financial institutions that heavily invested in commercial real estate have experienced severe strains as property values plummeted. This crisis highlights the importance of diversified portfolios and the risk associated with overreliance on a single industry.
Silver Linings and Recovery Efforts
Amidst the gloom, there are some silver linings in the commercial real estate sector. The sharp decline in prices has presented opportunities for first-time buyers and investors looking for distressed assets at rock-bottom prices. Financial institutions and government bodies are also stepping in to alleviate the burden on developers and investors by offering relief measures such as loan restructuring and moratoriums.
Additionally, adaptive reuse and creative repurposing of commercial properties have gained momentum. Developers are exploring alternative uses for vacant spaces, such as converting office buildings into residential complexes or transforming shopping centers into community hubs.
Conclusion
The 2023 recession has undoubtedly rocked the commercial real estate industry, with an unprecedented 90% drop in prices. The crisis has forced players in this sector to reassess their strategies and adapt to the changing market dynamics. While this downturn has led to substantial financial losses and challenges, it has also presented newfound opportunities and potential for reinvention. As the economy begins its recovery, the commercial real estate sector will need to navigate through uncertain waters and redefine its path to regain stability and long-term growth.
In case you thought the banking crisis was over – think again.
There's a good chance banks will have to write down asset values as much as 30-40% for their Commercial Real Estate loans. These loans account for 2/5 of small bank's assets. 3:03
As more of these CRE loans go bad, there will be increased pressure on banks to cut back new lending. I wouldn't be surprised if there's more bank runs for some of these small and regional lenders. And if the credit crunch identified at 4:08 gets worse in the second half of 2023 and into 2024.
In case you think this isn't a big deal, consider that there is 4x more commercial real estate debt today than there was Subprime debt in the 2008 crisis 5:05. Meaning huge financial contagion potential if enough of these CRE loans go bad.
Of course – there will likely be pressure from the Federal Reserve to come to the rescue as this all goes down. So we'll have to see what happens there. They could always print money again and buy the bad CRE loans. Thereby alleviating the crisis to some degree.
Let’s all buy bitcoins..
we need to crash and burn in order to rebuild.
You obviosly forgot to mention that banks could take all these properties off market and they will induce a supply shortage and hike thw prices
I am genuinely curious how you are so smart on this topic? Specific degree or career? As a fellow data enthusiast in other niches. I really appreciate your insights!
And the most expensive property taxes of any states in the US.
Do you need to turn up the volume in your videos? I can’t hear shit.
I call BS !
repercussions of accumulative corporate retrenchment in the past 9 months?
Even the high net worth and ultra high net worth people worry about money, just in different ways. There's no way around inflation. There's no way around recessions. Stop looking for a solution that doesn't exist and invest more money. Major indexes booked their worst yearly performance since 2008 thanks to drivers like the recession, war, hiked interest rate and inflation which so far doesn’t seem to be easing off, so I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here, is it a good time to buy or do I wait?
We are not Dodging anything thanks to our current president Low Blow Joe!
personally I think just how inflation "won" the fight for $15, inflation is also going to "prevent" many visible signs of a recession. house prices stay the same while the dollar halves in value.
yes, and the Fed has lost it's mind and now raising rates again to force people back to work in commercial offices and the like.
Spectacular analysis! Only proof that my education in economics pales in comparison to the way you have distilled the essence. You can't underestimate the fundamentals and demand curve/ structural changes in commercial real estate which shifts these types of investments from being sound bets to very risky. This, along with the shaky residential market looks like a real problem on the near horizon 2024
These crummy hedge funds buying up real estate are getting pig roasted? GOOD!
Regardless of recession and the increasing inflation rate globally The foreign exchange trade has been my major source of income despite the fact that I only work from the comfort of my home, I consider myself a successful trader mainly due to the teachings of my financial mentor mr Robert Andrew
Because its agenda 2030 plan for world racial equity, US must be third world too.
This dude been praying for a crash for 4 years straight lmao
So China and the Russians aren't the only one's fudging the numbers? Oh good heavens! I'm absolutely scandalized.
Everything since 911 has been fudging the numbers!
The contradictory priorities are so severe there's no plausible way forward. I just listened to Davos 2023 and somebody should tell them it's all over and it's time to invest in lillies. They did not actually reach any kind of agreement but the stage looked nice.
And AI makes everyone obsolete. It will have to learn how to pay the rents itself.
You may need as much as $2.6 million to maintain your current lifestyle due to inflation, which will continue to be impacted by high inflation, lower market returns or value projections, and stagnant wages. Achieving a secure early retirement may be more challenging than ever.