👉Commercial Real Estate Collapse Bigger than Subprime Mortgage Crisis

👉Commercial Real Estate Collapse Bigger than Subprime Mortgage Crisis House prices rose by 11.2% from a year ago, the most significant increase since the peak of Housing Bubble 1 in 2006. Commercial Real Estate is the next shoe to drop. More and more large warehouse buildings being built that remain vacant. The hotel market is in freefall. Unemployment is going to hit 10% before summer is up. Have you seen the trajectory of the stock market? This is not going to be your typical end-of-cycle downturn. Hotels are getting smoked right now. Retail is going to be right behind them. The next few months are going to be unprecedented. There is nothing that will reverse the trend away from malls. Five years from now, I bet more than half will be gone. Office and retail are getting crushed. Many people are behind eight months on their mortgage or rent. The moratoriums will end, but I don’t know how 1/3 of all Americans will be evicted. The number is so large they could just all say “no,” and no one could do a thing about it. Where will they go? No one wants to rent to someone who has been evicted. Previous landlords will be rightfully nervous about taking any tenant into their newly empty space. Let's not forget that a foreclosure rate of less than 3% helped trigger the 2008 collapse. So it doesn't take a whole lot, and there are still a whole lot of people struggling to catch up on rent/mortgage where that has never been a problem before. Many landlords will step out of this market because the hassle of not getting paid, government involvement & eviction just is not worth it. House value is high, and this is the best time as ever to sell it. So we see more supply but demand is not there. This whole charade is about to blow up. The government has to tell banks to work with landlords. Who can in turn work with companies. Who can in turn work with employees. Break one link in that chain, and America as we know it is done. It’s not just malls that are going to be in trouble. Commercial office space will most likely take a beating as well. I think that office footprint demand will decrease going forward. All of those employers that were reluctant to let their employees work from home are finding out that a lot of them can really do their job from home and will adopt flexible and rotating schedules. Office space cut back or any spaces held get thinned out. More Work From Home and teleconferencing going forward. Longer-term, many workers are in the midst of proving they can work from home. This may lead to a reduced commercial footprint for many corporate businesses after they realize how much they can save in overhead if they don't renew. A lot of companies are already starting to sell off their offices or are making work at home a permanent thing. An example is Twitter, where the CEO announced that people could work from home indefinitely should they choose. This is going to cause a major downturn for commercial real estate. Zoom and similar services are growing. As people use them and get accustomed to doing those things in virtual meetings, their adoption should grow. People that sit four desks away still just get on Skype or zoom in to work on something instead of booking a room or walking 20 steps. There are hundreds of thousands of corporate jobs that can be done in isolation, and many improve productivity due to less office nonsense. Reducing overhead is a competitive advantage for many businesses. And even setting the savings aside, how about the vast improvement in health for all the workers that don't have to spend 30-120 or more minutes of every day commuting. That alone is worth it to the workers, even if the assumption of reduced productivity comes true. Business will inevitably shrink, and businesses will see the office space as a burden, one which they can pass off to the employee( home work). Employees won’t mind because they get to reduce car expenses. Between one-third and one-half of American employees have been working in person throughout the pandemic. Some employers, however, have realized that several of the pandemic’s workarounds are cost-efficient and are considering making them permanent. There are many corporate leaders who still recognize that digital technology should not be a substitute for human connection. But in what we might call a “Zoom forever” move, many other companies are contemplating radically downsizing traditional office spaces and making remote work permanent for large groups of employees. There are a lot of companies that are already making their work from home change permanent. How many companies are going to stay in their current office space if they only have 50, 40, 30 percent of their current staff on-site? Not to mention companies like WeWork that pay hundreds of millions in leases right now are going to have an even harder time selling shared workspaces in the age of Covid-19. Absent some sort of major government stimulus or miraculous containment of the pandemic. Commercial Real Estate is primed to take a huge hit. Imagine stores, restaurants, bars, MF and SFH tenants, and almost anyone who rents not being able to pay their bills. People in self-storage, industrial, logistics Commercial Real Estate might be well insulated, and enough government money pumped into the economy could turn things around in a few months. But right now, no one knows what the heck is going to happen. If Commercial Real Estate falls, it takes everything down with it. As long as companies have money to pay their bills, rent gets paid. Once this virus dies down, we can just restart the economy where it was instead of going through all of the inefficiencies and loss of productivity caused by firms having to hire new workers and all the pain those workers will face from loss of employment. Citigroup has effectively stopped lending on Commercial mortgage-backed security. Honestly, this reaction should be predictable. Would you lend in this environment? I wouldn't. The Commercial Real-Estate Market is impending crash. A Collapse Bigger than Subprime Implosion. A $3.5 Trillion Commercial Real Estate Market Implosion. Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. Please take a second to hit the like button, hit the subscribe button, and don't forget to also hit the notification bell. Commercial Real Estate is in a giant bubble right now. Everything is really expensive, and they aren't a lot of transactions going on. A lot of businesses are barely hanging on and are operating paycheck to paycheck. Years of economic growth and easy financing have pushed prices for office towers, apartments, and warehouses to record heights. This bubble has already burst. Just look around at retail paces; everything is either closing or is empty of commerce and trying not to close! The prices are un-affordable. Some people still think real estate is a panacea where nobody can lose money. Business people became conditioned by years of above-normal economic growth, and the Fed is partly to blame for papering over every recession. In the recession of the 70’s commercial developers actually put money to work, building new industrial parks and housing. New projects are what we need to look at, and I doubt there is anything at all. I can say from personal experience that if you are unlucky or make the wrong moves, it can be a black hole. The Commercial Real Estate Office crushed by Work-from-Home. There is a Tsunami of Supply in Manhattan, San Francisco, Houston, Chicago, and Los Angeles. We already have a structural oversupply of commercial real estate. Retail vacancies are skyrocketing. Companies use the work from home spin as cover to shut facilities and downsize. The US is a service-driven economy; that’s where all the value adds are at. And with families tightening the belt increasingly, most of our service sector delights are the first to go. A lot of the retailers won’t be able to make it through. Behind the scenes, devastation in the real world is loud and clear if you pull the curtain, and in the case of smart consumers like yourself – you see it on the shelves. Things are going to get worse. The fate of many commercial buildings, that of the lessees, lessors-debtors, their creditors, and perhaps even that of the big cities themselves is “still unlearned.” It kinda reminds me of the lyrics to a 1949 song, “MTA,” by Jacqueline Steiner and Bess Lomax Hawes, later popularized by The Kingston Trio: … “Well, did he ever return? No, he never returned. And his fate is still unlearned.” Perhaps the gentrification of cities like San Francisco will begin to reverse now. That development might not be an altogether bad thing in terms of affordability for young people and the energy and creativity they can bring to a city. It may be that we are in the early days of Schumpeter’s creative destruction. Ironic, in a way, that it’s in such close proximity to the corporate homes of those who popularized the concept. These buildings, especially in earthquake-prone San Francisco represent huge liabilities. The ground shifts beneath them, a great deal of the city is on reclaimed wetlands. So they will probably top some of them to relieve stress, especially if the offices are vacant. Can’t imagine who will pay for all this. Oh, wait, yes, I can. The young Techies are easily spooked. The WTF thing will open up some great opportunity for future investment in commercial property if the FED does not let PE take it all private with zero interest rate fueled pennies on the dollar acquisitions. The Government will print money to keep the property maintained so the oligarchs can swoosh in at the bottom of the demand cycle, and Bada Bing Bada Boom, the first fiat Trillionaire is born. The reality is that at the end of the day, the FED connected will let you suck on the peach seed if you are grateful. The Fed has in effect done this to savers already with a decade of no time value of money. As long as the Fed is allowed to free-range over the economy, any perverted outcome is possible. Even when the pandemic is under control (herd immunity, drug therapy, immunization), some 20-30% of workers will never go back to the office ever again. I see Uber and Lyft pushing legislation to make gig workers a permanent fact of life. These workers will be the highly talented and motivated, whom companies will be unable to force back into a commute and a cube, or the worker drones who can produce and be readily monitored. If I was starting out as a broker (leasing or otherwise), I would RUN to amazon right now to try to get a job until this blows over. Tenants are either begging for rent relief or just flat out saying that they won’t pay April rent. The only lease activity that I see happening is very short-term renewals for expiring tenants - except landlords won’t have the money to pay commissions or TIs. The only bright spot in commercial real estate that I see right now is the guys who do receiverships. People compare this to 2008. That’s wildly optimistic. The benchmark right now should be 1929 - except this is going to happen faster, and since it’s a virus, we can’t New Deal our way out of it by putting people to work on infrastructure. Of course, if they find an effective therapeutic in the next couple of weeks or the government figures out an effective financial intervention, then we might be ok. But if this drags out for more than about two months, then we’ll be looking at Commercial Real Estate Armageddon. This was The Atlantis Report. Please Like. Share. Leave me a comment. Subscribe. And please take some time to subscribe to my backup channels; I do upload videos there too. You'll find the links in the description box. You will also find a PayPal link if you want to make a donation. Thank you wholeheartedly to all those of you who have already donated. Stay safe and healthy friends!
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