Sources Tell me some Messed Up Stuff is Happening in Commercial Real Estate
This is reprehensible
I’ve had two independent sources that work in commercial real estate tell me the same thing, and it’s disgusting. They say the largest property companies in the US (they named names, I can’t) are raising huge amounts of money.
Why?
Well, you have to understand how their loans are structured. They are called “non-recourse.” What that means is if they stop paying the loan, and the bank gets the building back, the bank cannot sue them for the remainder of the loan. So they can just cleanly walk away with little to no cost.
What they are planning…is to walk away from any buildings where the loans are worth more it makes sense to pay or to refinance. En masse.
Banks will take hundreds of billions to trillions of dollars in losses. And literally everyone knows the US government will have no choice but to bail them out, as usual.
Then, when the banks turn around and sell these properties for pennies on the dollar, these same property companies that caused the problem in the first place are going to buy better properties for cheaper and end up better off than they were before.
Absolutely disgusting.
You heard it here first.
Yup. It’s happening. If there is a financial crisis, it will be here. Perfect storm. Office buildings only 50% occupied due to work at home. Thus lease renewals, if they re-lease at all are at 50% of prior sq. ft. Urban decay is causing employers to move to the burbs (or in CA, out of state). No urban employees equals reduced demand for retail and restaurants. But, challenges still exist for those who buy cheap. When will people decide to re-occupy? When will urban decay turn around? Large floor plate office does not convert easily to residential. Perfect storm.