From Bad to Worse – Commercial Real Estate Meltdown Unfolding
On August 14, 2023
I continue to follow and update the latest data from the Commercial Real Estate market since this will likely be the primary trigger of the US Dollar collapse and the beginning of the end for the global fiat currency system.
In a nation on the cusp of a recession (if not all out depression), a sense of hopelessness is spreading across the Commercial Real Estate (CRE) sector. The industry appears to be veering perilously towards an abyss of unprecedented proportions. A slew of disconcerting indicators paint a grim portrait, warning of a potential collapse that will send shockwaves through the United States financial system.
Summary of Current CRE Crisis
- Growing vacancy rates, surging loan delinquencies, plummeting values.
- Remote work and urban flight contribute.
- Owners abandon properties due to underwater rents.
- Imminent risk of economic repercussions.
- CRE industry teeters on brink of disaster.
CRE Loan Delinquency Rates Surge:
- July 2023: CMBS delinquency rate rises by 51 basis points to 4.41%.
- Office delinquencies increase by 46 basis points to 4.96%.
- Delinquency rate highest since December 2021.
Building Values Plunge:
- Office occupancy rate less than 50% due to remote work.
- Predicted CRE price decline up to 40%.
- Potentially worse than Great Financial Crisis.
Loan Renegotiation and Rising Interest Rates will Initiate Disaster:
- Over 50% of $2.9 trillion commercial mortgages need renegotiation in 24 months.
- Anticipated CRE loan interest rate increase of 350 to 450 basis points.
Delinquency Rates Surge: A Ticking Time Bomb
The tumultuous journey of America’s CRE industry is highlighted by the alarming ascent of delinquency rates. The unraveling has been most vividly captured by the trajectory of commercial property loans packaged within the confines of Commercial Mortgage-Backed Securities (CMBS). In a gut-wrenching revelation, the delinquency rate surged by a disquieting 51 basis points, reaching an ominous 4.41% within a mere month.
However, the heart of the storm lies in the daunting rise of office delinquencies, a pivotal segment of the industry, which saw a staggering 46 basis point spike, propelling the rate to an alarming 4.96%. The once-stable pillars of the CRE sector are shaking, with the deterioration in the office segment accelerating at a pace that can only be described as alarming.
Values Plunge as Remote Work Prevails: A New Reality Dawns
With the relentless march of technology and the aftermath of the global pandemic, a new norm has taken root – the remote work revolution. This paradigm shift has sent seismic tremors through the office segment of the CRE industry. The dire predictions of Kiran Raichura, Capital Economics’ Deputy Chief Property Economist, cast a shadow over the future, as he anticipates a cataclysmic 35% plunge in office values by the latter half of 2025.
What’s even more unsettling is Raichura’s assertion that this abyss may linger, potentially remaining unrecovered even by 2040. Such a forecast is not just a warning bell but a resounding siren of distress, signaling a tectonic shift in the traditional office landscape.
Renegotiation Hurdles: A Looming Crisis of Repayment
As if these tremors weren’t enough, a looming storm is brewing on the horizon – the daunting renegotiation challenge. More than half of the staggering $2.9 trillion worth of commercial mortgages are slated for renegotiation within the next twenty-four months. An even darker cloud looms overhead in the form of anticipated new lending rates.
Experts prognosticate an unsettling surge of 350 to 450 basis points in these rates. This collision of renegotiation and elevated lending rates forms a perfect storm that could trigger a catastrophic wave of defaults, foreclosures, and ultimately, a deepening crisis within the CRE sector.
CRE Faces Deeper Decline: An Inescapable Abyss
Lisa Shalett, the Chief Investment Officer of Morgan Stanley Wealth Management, lends a chilling crescendo to the chorus of cautionary voices. Her ominous forecast of a 40% plunge in CRE prices casts an eerie shadow over the industry. This potential plummet is poised to surpass the tumultuous aftermath of the Great Financial Crisis. The gravity of her prediction is impossible to ignore. The CRE sector, once a bastion of stability and growth, stands at a precipice, poised to tumble into a chasm of uncertainty and upheaval.
The Contagion Spreads: An Unfolding Domino Effect
The creeping contagion that has infiltrated the CRE sector is no longer an isolated phenomenon. What began as a localized downturn has metastasized into an industry-wide crisis. This unraveling has the hallmarks of a domino effect – a single precipitating event, followed by a cascading series of repercussions that spread like wildfire. The once-vibrant landscape of CRE is now plagued by soaring vacancy rates, surging delinquencies, and plummeting values. Each element exacerbates the other, fostering an environment of uncertainty that threatens not only the CRE sector but the broader economy at large.
A Ticking Time Bomb with Global Implications
As America’s CRE industry navigates treacherous waters, the alarms are ringing louder and clearer than ever before. The tremors felt within this sector have the potential to unleash a tidal wave of financial consequences that would reverberate far beyond the confines of the industry.
With each passing day, vacancy rates soar higher, delinquency rates march upwards, and values plunge deeper into the abyss. The question no longer lingers in the realm of “if” but resonates as a resounding “when.” When will the CRE industry hit rock bottom?
When will the consequences of this spiraling crisis send shockwaves through an economy still grappling with the aftershocks of government-imposed closures and lock-downs? The once-stable pillars of the CRE sector now stand precariously, serving as a stark reminder of the fragility that lies beneath the surface of the Fiat Debt Currency System.
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