Tiaong, empty office building are a huat big big opportunity for the world

[k1976]

Businessweek
The Big Take

The World’s Empty Office Buildings Have Become a Debt Time Bomb​

From San Francisco to Hong Kong, higher interest rates and falling property values are bringing the commercial real estate market to a perilous precipice.

By
Natalie Wong,
John Gittelsohn,
Jack Sidders and
Shawna Kwan
+Follow
23 June 2023 at 12:01 GMT+8
In New York and London, owners of gleaming office towers are walking away from their debt rather than pouring good money after bad. The landlords of downtown San Francisco’s largest mall have abandoned it.

A new Hong Kong skyscraper is only a quarter leased.
The creeping rot inside commercial real estate is like a dark seam running through the global economy. Even as stock markets rally and investors are hopeful that the fastest interest-rate increases in a generation will ebb, the trouble in property is set to play out for years.

 

[k1976]

https://www.google.com.sg/amp/s/fin...a-stocks-set-mixed-open-222602803.html?espv=1

 

[k1976]

Investors fled into the safety of bonds and stocks wavered as a lurch toward higher interest rates together with weak euro-area activity data heightened anxiety that aggressive central bank policy will tip economies into recession.

Global stocks headed for their biggest weekly decline in more than three months. European shares fluctuated, with a record 36% drop in Siemens Energy AG’s shares after a profit warning dragging on the broader market. Defensive sectors such as health care gained. US index futures fell.

The second-quarter stock rally is fraying under the threat of more rate hikes and fears that the full economic impact of aggressive rate increases has yet to be felt. Federal Reserve Chair Jerome Powell said the US may need one or two more rate increases in 2023.

“The market has not yet digested the lagged impact of tighter Fed policy,” said Emily Roland, the co-chief investment strategist of John Hancock Investment Management. “Based on what we’ve seen in terms of this really strong run-in markets, we would consider trimming risk.”

 

[k1976]

https://www.google.com.sg/amp/s/new...ty-offices-ticking-time-095505342.html?espv=1

 

[k1976]

The smartest insight and analysis, from all perspectives, rounded up from around the web:
Another banking crisis is looming, said The Economist. "A combination of nasty events" has produced a "hellish-perfect-dumpster-fire-storm" for investors in commercial real estate, landlords, and their financiers. Building owners are slowly accepting the idea that, thanks to remote and hybrid work, their office properties are "unlikely to fill up again" and are therefore worth "only half what they paid for them." In the extreme case of San Francisco, office vacancies have hit 33 percent, more than eight times the pre-pandemic level. The combination of plummeting occupancy and higher interest rates will make refinancing tougher for property owners, who may simply hand back the keys. Banks could "end up with lots of offices" to try to sell at deep discounts. "This will bring back memories of the global financial crisis."

Almost $1.5 trillion in U.S. commercial debt will need to be renegotiated in the next 24 months, according to Morgan Stanley, said Alena Botros in Fortune. The recent banking crisis will only "exacerbate the existing lack of liquidity" as banks tighten lending standards. Interest rates are 450 basis points higher than they were a year ago. Delinquencies could cut commercial real estate values by 40 percent, "worse than in the Great Financial Crisis." Unfortunately, "the wall of debt is set to get worse," said Neil Callanan in Bloomberg. The number of loans coming due will continue to rise over the next four years, peaking at $550 billion in 2027. "Banks also own more than half of the commercial mortgage-backed securities," bonds that are backed by commercial mortgages. Prices for those bonds have dropped precipitously.
Smaller banks have the most to lose, said Jeff Stein in The Washington Post. Banks with less than $250 billion in assets account for roughly 80 percent of commercial real estate lending, according to Goldman Sachs. And at least 400 midsize U.S. banks "have three times as many loans for commercial real estate as they do safer investments." "The nightmare scenario would come" if leases don't get renewed, forcing down property values, which turn into big losses on smaller banks' balance sheets. "That, in turn, could make depositors and investors doubt banks' financial stability — potentially leading to the same kind of runs that brought down Silicon Valley Bank and Signature" last month. Will the government rescue hundreds of failing banks?

"The office sector is only one part of commercial real estate, albeit a large one," said Tim Mullaney at CNBC. Office vacancies have been a problem for two years, but banks haven't succumbed to commercial delinquencies yet. That's because other sectors of commercial real estate are in very good shape. "Vacancy rates in warehouse and industrial space nationally are low," hotels are booming, and retail stores are also hanging on to their brick-and-mortar footprints relatively well. Before you panic about banks, consider this: At Wells Fargo, the nation's largest commercial real estate lender, write-offs on commercial loans were just "one hundredth of 1 percent of the bank's portfolio" last year. Consumer loan write-offs were 39 times higher.
This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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[k1976]

The initial banking crisis is easing. Another may be around the corner.​

Commercial real estate could become a problem for midsize banks​

By Jeff Stein
Updated March 27, 2023 at 7:52 a.m. EDT|Published March 27, 2023 at 6:00 a.m. EDT


Federal authorities still grappling with the banking crisis caused by the collapse of Silicon Valley Bank are already beginning to worry about the next potential bomb to go off in the nation’s financial system.


In the White House, Treasury Department and Federal Reserve, policymakers are examining the potential risks posed by the approximately $20 trillion market for commercial real estate, which some analysts project is heading for a crash over the next two years, according to four people familiar with the matter, who spoke on the condition of anonymity to reflect private conversations.

Another midsize bank, Raleigh, N.C.-based First Citizens, will purchase Silicon Valley Bank, the Federal Deposit Insurance Corporation announced Sunday. Over the past two decades, such regional banks — like SVB and Signature Bank had been — have grown enormously as commercial real estate boomed, because such banks rely heavily on lending to businesses and property developers.


But the pandemic upended office leasing and construction, with many companies shifting to remote work and reducing their office space. That has quashed demand, leaving the market saturated with vacancies and threatening to push down property values.


https://www.washingtonpost.com/us-policy/2023/03/27/commercial-real-estate-banks-loans/

 

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Businessweek
Finance

The ‘Extend and Pretend’ Real Estate Strategy Is Running Out of Time​

Higher interest rates and soaring vacancies have brought the commercial property industry to the brink.

Illustration: Timo Lenzen for Bloomberg Businessweek
By
Patrick Clark
+Follow
23 June 2023 at 12:01 GMT+8

The high chieftains of real estate finance flocked to the Marriott Marquis in New York’s Times Square in June at a precarious moment for their business. Commercial property transactions were stalled, squelching demand for new loans.

And loans made during the mid-pandemic go-go days, when the world was high on government stimulus money, needed fixing. Yet many conferencegoers were upbeat, trading notes on a surprisingly resilient economy and the media’s tendency to exaggerate the challenges. An after-party at Cipriani was “an absolute zoo,” says Toby Cobb, a managing partner at lender 3650 REIT, as if the industry were operating at peaks last seen in 2006.

It’s not that the market participants had forgotten the lessons of the global financial crisis that followed the 2000s boom. It’s that they remembered them.

Faced with delinquent loan payments, lenders decided to be patient: Instead of foreclosing on properties whose value was plummeting, they lengthened loan terms and ignored short-term valuations.

They called it “extend and pretend,” and it worked so well that when Covid-19 brought the global economy to a halt in March 2020, they turned to it again. A rolling loan, they said, gathers no loss.

 

[cocobobo]

Good. Move the homeless in there