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This compilation of financial-related insights includes videos from WTFinance and Reventure Consulting.
Daniel McNamara joins WTFinance to discuss the perfect storm for commercial real estate defaults. Reventure Consulting talks about how the 2023 recession has just hit commercial real estate.
WTFinance
Jul 14, 2023
Interview recorded – 5th of July, 2023
During this interview of the WTFinance podcast I had the pleasure of speaking with Daniel McNamara – Founder & CIO of Polpo Capital.
During our conversation we spoke about what is happening in commercial real estate, why this market could see large losses, who are the bag holders and what this means for commercial real estate moving forward. I hope you enjoy!
Reventure Consulting
Jul 14, 2023
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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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