International Monetary Fund Warning to the US

 

AP- The International Monetary Fund recently sounded the alarm on the Biden administration’s rampant spending as “out of line with what is needed for long-term fiscal stability.”

The IMF’s latest forecast from the IMF — a group tasked with fighting financial crises worldwide — warned that the ballooning national debt and the fiscal deficit threatened to exacerbate sky-high levels of inflation while posing a long-term risk to the global economy.

The IMF noted in its forecast that the US federal budget deficit grew from $1.4 trillion in fiscal 2022 to $1.7 trillion last year.

The debt held by the public, which surpassed $34 Trillion, is on course to exceed $45.7 trillion within a decade — which is roughly 114% of the gross domestic product, according to projections by the Congressional Budget Office.

“Something will have to give,” the IMF warned.

The IMF, a financial agency run under the auspices of the United Nations, praised the US economy for its growth.

Despite rampant inflation, the US economy has continued to add jobs while spending and income have been on the rise. In the fourth quarter of last year, GDP rose at an annual rate of 3.3%. In 2023, the US economy added 2.7 million jobs.

Nevertheless, the IMF said that the Biden administration’s spending is cause for concern.

The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said. “But it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”

Since entering office, Biden has spent trillions on COVID relief as well as infrastructure. The US has also spent billions in helping Ukraine fight off the Russian invasion.

But the Biden administration said that tax cuts signed into law by former President Donald Trump are to blame for ballooning debt.

“The Trump tax cuts added $2 trillion to the debt with unpaid giveaways skewed to the wealthy and big corporations, and now Congressional Republicans are proposing another $5.5 trillion in tax cuts skewed to the rich, while raising taxes on millions of middle-class families,” Michael Kikukawa, a White House spokesperson, told The Post.

“President Biden is fighting to lower the deficit by $3 trillion by making the richest Americans and big corporations pay their fair share—all while cutting taxes for the middle class and never raising taxes on households earning less than $400,000.”

The US is an outlier among the major industrial economies. Europe’s economy failed to expand by the end of last year.

The 20 countries that use the euro as a currency have not shown significant growth since the third quarter of 2022 — and even then the economy grew at just 0.5%. The eurozone grew 0.5% for the full year in 2023, while the US grew 2.5%.

China, the world’s second largest economy, said late Monday it grew a surprisingly strong 5.3% despite an ongoing property crisis. Russia, which remains mired in its invasion of Ukraine, has managed to withstand Western sanctions. Its economy is projected to grow at a 3.2% clip.

Weitz take: This is one I need to be a bit cynical and super straight forward on. 1) Do I think the USA can't keep 'printing money' (which is exactly what we do). No - I think we can and will. Frankly, most monetary systems are a bit of a ponzi scheme (that's something they don't teach you your school books). The biggest issue with this is WHO is SAYING THIS, WHAT THEY ARE SAYING and WHAT IT COULD MEAN. 

For most of our lifetimes, our status as the major reserve currency of the world gives us the ability to print money without any major repercussions globally without having to deal with what should arguably be a weakened currency. 

For the betterment of the US, we have held that status since the end of World War II. (see more on this concept here). The IMF controls which currencies make up this basket of currency that controls much of global trade. If they decide, for instance, that the Chinese Renminbi is a safer currency, the dynamics of all this would change and change dramtically. We couldn't print at infinitum without facing a severally weakened dollar in such a case. At the time of this writing, multiple countries making up the "BRIC alliance" are taking active steps to replace the dollar in this hierarchy of currency relevance. Frankly, this is by far the most important issue for the future of this country but we have too busy arguing about social issues that won't mean a darn thing if our currency collapses. 

 

Everett, WA Proposal for new multi-purpose stadium

 

EVERETT NEW STADIUM

 A local story here for those in my community. The city of Everett is taking significant steps to determine a potential stadium in downtown Everett. 

See below article link as well as a copy of the potential sites found on the Everett City Website below. 

EVERETT — The City Council unanimously approved creating a new committee Wednesday to conduct in-depth research and advise city leaders

Three options are on the table:

1)            upgrade the current Funko Field,

2)           demolish and build a new stadium on the current property, or

3)           construct a new stadium downtown near the Angel of the Winds Arena.

Everett needs significant upgrades to meet the new MLB standards. The city would be at risk of losing the minor league team if efforts to upgrade the stadium aren’t well underway by 2025.

The project could cost between $40 million and $80 million, according to figures presented by an outside consultant hired to work on the project.

For more information on Everett Commercial Real Estate, consider contacting an Everett Commercial Real Estate Broker. 

NY Landlord Rudin sees positive for CRE

 Bill Rudin sees positivity in the office market. He's mostly focused on NY city.

As we try to remain as neutral as possible despite our fairly negative / cautious outlook, it's important to look at the situation from all angles and make sure we look at all the 'pieces of the puzzle'. 

Weitz: My thoughts on this interview is 1) he leans on a lot of anecdotal evidence which I can't stand. "18 new Broadway shows are coming"; "we signed a lease". One perception doesn't make a big picture reality. I don't think we are going to truly see the the office issue resolved for years until we settle into a new normal with the work from home vs. hybrid vs 5 days in the office. This will vary industry by industry and company by company, but overall, I have to think management teams generally will want to lower their office footprint while also creating a office culture.

Janet Yellan warns inflation decline may not be "smooth"

Treasury Secretary Janet Yellen Interview release today. 

 

"Once rents cycle through, inflation will come down more"... "it take awhile for that to filter into the Consumer Price Index ('CPI'). 

Later in the interview, she said "I wouldn't expect this to be a  smooth path month to month, but the trend is clearly favorable". 

WEITZ: Let me interpret this... "(commercial) rents are falling, thus our current 'Consumer Price Index' / CPI numbers are crap. We are actually in more of a deflationary/ stagflation environment...but we are hiding the ball from the American public for whatever reason". 

I hate to say this, but I have zero faith in our current leaders to navigate what I believe is coming our way. 

In the later 2000s during the last major economic crisis, we had Ben Bernanke and Hank Paulson at the helm of Federal Reserve and Treasury respectively. Bernanke was a Princeton scholar on the Great Depression and Paulson was the former CEO of Goldman Sachs and carried a lot of weight on Wall Street. While I'd argue the bank bailouts benefitted the culpable parties and were thus were BS in some ways, that was the act of Congress and Obama at the time to not put guardrails on the use of the bailout funds.... Nevertheless, those two unequivocally saved us from a awful financial situation with collateral banking damage that likely would have mirrored a great depression like situation. I'm not so sure I have the same confidence in Mr. Powell or Ms. Yellen to navigate the ship if the 'waters get choppy'. 

Lets be frank - we have a debt based monetary system that can't withstand interest rates this high so if we are monitoring it based on crap CPI numbers, their analysis is equally crap and they will keep rates too high for too long.

CNBC - Homebuyers need to earn 80% more than in 2020 to afford a house in this market.

CNBC Article outlines the increased costs of housing in the past 4 years. 

Some key takeaways: 

Almost 4 years ago, household earning $59,000 annually could afford a new mortgage without spending more than 30% of their monthly income with a 10% down payment according to Zillow Group. 

While the typical household in 2024 makes about $81,000 / year (up from $66k), wages have not kept up with housing costs. 

Since January, 2020, the typical mortgage payment on the typical home has almost doubled, according a a senior economist at Zillow. 

Nowadays, a potential home buyers to make $106,5000 to afford a typical home.

Tight supply is another reason behind the unaffordability. 

The number of new housing  units built throughout the years has been declining and law supply is rooted in restrictive land use and zoning regulations. 

WEITZ: Nothing new here necessarily. Yes, affordability is a problem. Yes, low inventory is a key component of that. I continue to believe you will see an inventory increase as people 1) sell 2nd or 3rd homes; 2) we see distressed listings either in the form of defaults (job losses appear to be mounting); 3) divorce, 4) elderly people moving out of their homes or passing them to the next generation; or 5) people just wanting to move to a new area. 

I have a hard time seeing this entire pricing situation as sustainable. Fed Chairman Powell all but admitted he's trying to lower prices when the rate increases were established by the Fed. I personally think he's surprised by the resiliency to this point (as am I), but I don't know if he fully thought of the collateral damage that no one would sell their home with a 2.5-3% rate to buy something at 7% and thus we have created the most stagnant market of my lifetime. The next 12-24 months will be a tug of war between inventory vs. rates. If rates fall and inventory stays the same, we will see continued growth. If inventory grows and rates stay somewhat in line, I think we see some weakness in pricing in many parts of the country. If I had to bet, I'm betting on the latter of those two. I simply don't think these prices are sustainable for the average American (certainly not young american who doesn't have equity in a current home) although I certainly feel like the black sheep with that opinion these days. 

.... Time will tell. 

Biden Announces Plan to Lower Housing Costs for Working Families

In conjunction with his State of the Union address, President Biden & the White House announced A PLAN to lower housing cost for working families. 

Below are some of they points and any insights I can provide on the matter. I do my very best to keep politics out of any commentary so I'll make best efforts to be as neutral as possible in my comments. 

1. President Biden believes housing costs are too high, and significant investments are needed to address the large shortage of affordable homes inherited from his predecessor and that has been growing for more than a decade. 

Weitz- I'd agree that costs are too high for the average American. 

2. President Biden will call on Congressional Republicans to end years of inaction and pass legislation to lower costs by providing a $10,000 tax credit for first-time homebuyers and people who sell their starter homes; build and renovate more than 2 million homes; and lower rental costs. 

Weitz- Is a $10,000 tax credit going to do much if you can't afford the home in the first place? 

3. Mortgage Relief Credit. President Biden is calling on Congress to pass a mortgage relief credit that would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years. This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home, and will help more than 3.5 million middle-class families purchase their first home over the next two years. 

Weitz- This math doesn't work in Seattle area, but I like the concept. 

4. The President’s plan also calls for a new credit to unlock inventory of affordable starter homes, while helping middle-class families move up the housing ladder and empty nesters right size. Many homeowners have lower rates on their mortgages than current rates.

Weitz- How? See below. 

5. The President is calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home, defined as homes below the area median home price in the county, to another owner-occupant.

Weitz - so I go from a 2.5% mortgage at $700k so I can buy a 7%+ mortgage at $700k. That's a horrible move if the credit only lasts a year. On a $700k home loan, that's $32,000  increase annually, but thanks for the $10,000 tax credit!

6. Lowering Closing Costs for Home Mortgages. The Consumer Financial Protection Bureau will pursue rulemaking and guidance to address anticompetitive closing costs imposed by lenders on homebuyers and homeowners.  These charges—which benefit the lender but not the borrower—can add thousands to the upfront costs of a mortgage.  Those upfront costs cut into the amount of homebuyers’ down payments and reduce homeowners’ available equity.

7. Tax Credits to Build More Housing. President Biden is calling for an expansion of the Low-Income Housing Tax Credit to build or preserve 1.2 million more affordable rental units. Renters living in these properties save hundreds of dollars each month on their rent compared with renters with similar incomes who rent in the unsubsidized market.

8. Innovation Fund for Housing Expansion. The President is unveiling a new $20 billion competitive grant fund as part of his Budget to support communities across the country to build more housing and lower rents and homebuying costs. This fund would support the construction of affordable multifamily rental units; incentivize local actions to remove unnecessary barriers to housing development; pilot innovative models to increase the production of affordable and workforce rental housing; and spur the construction of new starter homes for middle-class families. 

Weitz - intrigued by this as would be my developer contacts. I have to say its a bit concerning that this is 1/3 of what many want to send to Ukraine.

9. Fighting Rent Gouging by Corporate Landlords. The Biden-Harris Administration is taking action to combat egregious rent increases and other unfair practices that are driving up rents.

I've keep an eye on this. I'll never be made a tax credits, but this doesn't seem to solve the issue although the grant program seems very intriguing. 

Fed Chairman Powell speaks at Senate Committee Hearing

 

While I'd expect exactly zero people to watch this 2.5 hour video, Chairman Powell sat for his "Semiannual Monetary Report to Congress".

Below are the highlights: 

The hearing comes after he told lawmakers on Wednesday that the central bank’s policy-setting committee still isn’t convinced that continued progress toward their 2% inflation objective is “assured,” and that it won’t make sense to cut interest rates until it is confident.

Powell told the House Financial Services Committee that he still expects cuts to come this year.

Powell noted that the inflation situation has “eased notably” over the past year, without any significant spikes in unemployment. The labor market remains “relatively tight” even as surging immigration has made more workers available.

The central bank head's testimony hit the same notes the public has heard from officials in recent weeks following the Federal Open Market Committee’s January meeting.

WEITZ - Simply put, I have zero faith the Fed will get this right. They were wrong about inflation being "transitory" and they will be wrong about sticking a soft landing. Time will tell, but I expect housing to start seeing trouble in '24 and the following years to be tough sledding....and that doesn't take into account the $1 Trillion in CRE loans that need to dealt with this year. 

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate broker. 

Our Firm

Weitz Commercial

Scott@weitzcommercial.com

T: 206.306.4034

RXR CEO Scott Rechler Commercial Real Estate Update

Interview with RXR CEO Scott Rechler. He points out many of the issues I've discussed in the past few months. A detailed overview as well as my commentary can be found below.

"A trillion dollars of commercial loans are coming due this year". 

"The slow motion train wreck hasn't 'left the station". 

"The challenges haven't been dealt with".

Occupancy rates down 20% on office space. 

"There has to be acknowledgement of prices. The values being used by banks are in flux. 

The smaller and regional banks are facing the biggest hurdle. 

Banks referenced include KeyCorp (KEY), ZIONS Bancorp (ZION), M&T Bank (MTB), PNC Financial (PNC). 

WEITZ: Mr. Rechler always brings a great, well thought out honest take. There is nothing here that I would disagree with. Its going to take awhile for all of this to play out.

For more information on investing in Snohomish County Real Estate, consider contacting a Snohomish County Commercial Real Estate Broker. 

Our Firm: 

Weitz Commercial
Scott Weitz
T: 206.306.4034

Macy's to close 150 stores - CRE effects

Bisnow.com: Macy's released a statement that they will be closing 150 stores nationwide over the next 3 years.

My immediate reaction was "there are 150 Macy's stores in the US?!

Indeed - as of Jan, 2024, there were 507 stores in the US. To close 150 is a pretty bold move, and one would imagine that is just the stores where leases are expiring. 

It also poses a significant question on large retail shopping centers. I'm the last to be considered a shopping expert, but all the Macy's stores I'm aware of are THE or one of the flagships of every mall/ shopping center they are in. That's certainly the case locally in Seattle and Bellevue. Whose big enough in the retail world to fill these spaces? What can the landlord do to somehow utilize all this lost space. I imagine it will take a tremendous amount for alterations to get these spaces functional again. 

Below are the key points and my comments. 

Macy's will close 150 stores nationwide over the next three years as part of a plan meant to right the ship for the storied retailer, which has struggled in recent years, particularly since the pandemic.

The first 50 stores are scheduled to close by the end of the fiscal year, Macy's said, with the rest of the closures occurring by the end of 2026. The statement also mentioned the monetization of $600M to $750M of assets by the end of 2026, indicating the potential sale of properties.

The impacted stores account for 25% of the company's square footage but just 10% of sales.

When the closures are complete, Macy's will be left with about 350 stores, just over half its pre-pandemic store count. The company announced a similar in February 2020, closing 125 stores in the three years that followed.

Weitz- franky, this feels like it may be a slow play to avoid BK and allow time for shareholders to get out/ retain value before closing shop for good. Perhaps that's just the skeptic in me. 

The company also announced a pivot toward its luxury brands, Bloomingdale’s and Bluemercury. The renewed focus on these brands is expected to result in 15 new Bloomingdale's locations and 30 Bluemercury stores in the next three years. Another 30 existing Bluemercury stores are slated for remodeling. 

The move comes amid slumping sales for the legacy department store chain, as well as a looming proxy fight for Macy's with Arkhouse Management, which nominated a slate of nine directors for Macy's 14-person board not long after the retailer rejected a bid by Arkhouse and Brigade Capital Management to go private.

The real prize in taking the company private would likely be its real estate. Macy's is worth billions more than the $5.8B Arkhouse and its partner put forward, mainly because of its prime real estate.

Last year, Macy's net sales dropped 5.5% compared to 2022, and  2comparable store sales were down 6% year-over-year. The chain experienced a loss of $71M in 2023, down from a net income of $105M in022. For the fourth quarter of 2023, net sales were off 1.7% compared with a year earlier, and comparable store sales dropped 4.2%.

Macy's faces the same headwinds as the entire department store sector, which has been slowly contracting for years. In January, department stores suffered a 6.7% drop in sales compared to a year earlier according to the Census Bureau. 

Weitz- I have a feeling this won't be the last story like this. We will follow what we think will be a wild ride in the coming years as best we can for our readers with no political agenda.  

For more information on Snohomish County Commercial Real Estate investing, consider contacting a Snohomish County Commercial Real Estate broker.

My contact: 

Scott@WeitzCommercial.com 
D: 206.306.4034

Office Market Optimism?

Bisnow.com article on “Optimism for office market”. Despite my typical negative commentary on the intermediate future for CRE and the economy, I also do my best to remain as neutral as I can be. As such, here’s an article on optimism for the office market from Bisnow.com.

AP- Though sentiment around the office market has sunk drastically, some economists believe that the fears of an urban 'doom loop' might be too extreme.

Although the office market has faced record-high vacancies and falling values, experts on a panel at the National Association for Business Economics conference in Washington, D.C., this week said there are several signs that major cities can avoid financial crisis, Market Watch reported.

“Intellectually, based on the data, we’ve concluded no doom loop fears here. The industry can make its way through,” Moody’s Analytics Deputy Chief Economist Cristian deRitis said at the event, according to Market Watch. “There is quite a bit of capital in the system. The distribution of CRE loans is not just concentrated in banks."

Erin Patterson, global co-head of research and strategy for real estate at Manulife Investment Management, said there are other financing options out there that are helping and banks have been open to working with borrowers to create value for office buildings.

“That’s an escape hatch from this doom loop,” Patterson said at the event, according to Market Watch. 

The term "doom loop" comes from the vicious cycle that occurs when people begin to leave cities, which leads businesses to close and cities to lose tax revenue. This, in turn, leads these cities to cut services and raise taxes further driving people out. 

Other economists think this possibility should be taken more seriously, as it could lead to devastating impacts on major metro economies.  

As the remote work trend continues, people aren't coming into downtown offices at the same levels as they did pre-pandemic, which has caused office values to drop and led to economic pain in many major cities. 

"These commercial property tax revenues are an important component of the budget of local governments, which means less money for police departments, trash collection and some people are going to decide that the quality of life has deteriorated too much and they want out," Columbia Business School professor Stijn Van Nieuwerburgh said last month on 60 Minutes.

Van Nieuwerburgh added that the top 10 U.S. cities have lost over 2 million residents in the last three years, taking with them the tax revenue that these cities rely on.

Boston is projected to face a $1.5B revenue shortfall in the next five years due to declining office values, a new report found this week, while D.C. has seen a 'shocking' plunge in office values and is expected to lose hundreds of millions in tax revenues. 

Weitz Take: This article is pretty funny. The title and start give an ‘opinion’ that things may turn out fine, and then goes on to cite data that would objectively lead to a very different conclusion. In an effort to be positive, I’ll say that the next few years will vary market to market so to paint a broad stroke of doom and gloom would be irrational. I think there are some smaller submarkets that could perform well that have untapped potential as of now.

For instance, my area of Snohomish County, WA, while I don’t believe it will be immune from all negativity has considerable room to grow given current zoning opportunities as well as companies looking for more affordable space than what they could find in areas of Seattle, Bellevue, Etc.

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate broker.

Contact us Today

Weitz Commercial
Scott@WeitzCommercial.com
t: (206) 306-4034

Bank Term Funding Program (BTFP) Basics

 

Remember those bank failures nearly a year ago that had the banks being turned on their heads? Signature Bank, Silicon Valley Bank, etc. What happened to that concern. Things don't seem to have improved much, but the banks all seem fine. What happened. Well, I'll be honest - I wasn't blogging about economics back then and this even went past my radar ..... BUT ..... this is pretty incredible.... here's a direct overview from the Federal Reserve website. The Fed funneled an extraordinary amount of loans to banks in the form of the Bank Term Funding Program (BTFP). 

On March 12, 2023, the Board of Governors of the Federal Reserve System (Board), by the unanimous vote of its six members and with the approval of the Secretary of the Treasury (Secretary), authorized each of the 12 Federal Reserve Banks (Reserve Banks) to establish and operate the Bank Term Funding Program (BTFP) under section 13(3) of the Federal Reserve Act (12 U.S.C. § 343(3)). The BTFP makes funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

Here's the data they are required to post: 

 As of March 15, 2023: The total outstanding amount of all advances under the BTFP was $11,942,528,000.  The total value of the collateral pledged to secure outstanding advances was $15,885,798,000. The amount of interest, fees, and other revenue or items of value received under the facility, reported on an accrual basis, was $662,000.

March 2024 Data

As of January 31, 2024: The total outstanding amount of all advances under the BTFP was $165,237,527,000.

February 2024 Data

The total value of the collateral pledged to secure outstanding advances was $204,762,040,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.

So let me get this straight, in less than 12 months, they have issued $165,237,527 to the banks with unclarified payoff periods (as far as I can tell). 

Call it what you want, but this is nothing short of a bailout. This program ends soon and frankly, the economic situation is the same (if not worse) in terms of items banks have loans out like Commercial Real Estate. 

It will be interesting to see how the banks progress when this program ends. I have to think we will see another round of failures and/or bailouts. 

For more information on Snohomish County Real Estate, consider contacting a Commercial Real Estate broker. 

Foreclosure Filings on the Rise Nationwide

AP - Article on Nationwide increase in foreclosure filings. Key points and comment below. 

Foreclosure filings have seen an uptick, signaling potential distress for homeowners amid ongoing financial volatility.

The number of properties with foreclosure filings in January is up 5% compared to a year ago and 10% from December, according to real estate data provider ATTOM's January 2024 U.S. Foreclosure Market Report. The report shows there were a total of 33,270 foreclosure filings — default notices, scheduled auctions or bank repossessions.

"We observed a slight uptick in foreclosure filings, which may be partially attributed to the typical post-holiday progression of filings through the legal system," ATTOM CEO Rob Barber said. "However, other external factors may be at play such as escalating interest rates, inflation, employment shifts and other market dynamics. We remain vigilant in monitoring these trends to understand their full impact on foreclosure activity."

Foreclosure completions surged in 19 states. In January, lenders repossessed 3,954 properties through completed foreclosures, marking a 1% increase from the previous year and a 13% rise from December. It's the first month-over-month increase in completed foreclosures (REOs) since July.

Among the 224 regions with a population of at least 200,000, cities with the highest numbers of REOs included Detroit with 609, followed by Chicago with 194, New York City with 163, Philadelphia with 107 and San Francisco with 107.

Foreclosure rates across the United States remained concerning, with one in every 4,236 housing units experiencing a filing nationwide. Leading the pack in foreclosure rates were Delaware, where one in every 2,269 housing units faced a foreclosure filing, followed by Nevada with one in every 2,272 and Indiana with one in every 2,499.

Foreclosure initiations surged monthly and yearly as lenders started proceedings on 21,770 properties in January — a 6% increase from the previous month and a 5% rise compared to the same period a year ago.

Leading the tally of states with the highest number of foreclosure starts in January are California, which saw 2,719, followed by Texas with 2,613, Florida with 2,330, New York with 1,341 and Illinois with 763.

In major metropolitan statistical areas with populations of at least 200,000, New York led with 1,470 foreclosure initiations, trailed by Houston with 1,015, Los Angeles with 817, Miami with 804 and Chicago with 763.

Weitz Take: If you read this blog, you know I've been predicting this since rates increased dramtically and job loses (that the media hardly covers) started in the last 12-18 months. I think we are just at the tip of the ice berg on this. Buckle up. 

For help with foreclosure defense, consider contacting a Snohomish County Foreclosure attorney. 

1/5 of all Commercial Loans set to mature this year.

 

Article from Bisnow.com on Commercial Real Estate Loans coming due in 2024. Highlights and overview below. 

Almost one-fifth of outstanding commercial real estate debt is due to mature this year, a total of $929B in debt obligations that will require borrowers to refinance or sell properties, according to new figures from the Mortgage Bankers Association.

The value of loans set to come due is up 40% from an earlier $659B estimate by the MBA, Bloomberg reports. The outlet attributes the sizable increase to an uptick in loan extensions and similar delays rather than an onslaught of new deals.

U.S. commercial real estate backs about $4.7T in debt, and investors, lenders and regulators have grown antsy as building values slide and loans mature, Bloomberg reported. Prices on commercial properties have fallen 21% from an early 2022 peak. Office prices have dropped most precipitously, sinking 35%.

Particularly in the office market, borrowers have largely been playing a game of loan extensions when possible, pushing harder decision points down the road. About 25% of office loans are coming due in 2024, according to the MBA.

While uncertainty around interest rates, unclear property values and questions about real estate fundamentals have suppressed transactions of late, it's more likely deals get done this year, Jamie Woodwell, head of commercial real estate research at the Mortgage Bankers Association, told Bloomberg. 

“This year’s maturities, coupled with greater clarity in those and other areas, should begin to break the logjam in the markets," Woodwell said in a statement.

This year could also bring more refinanced loans and fewer modifications on better-performing properties, Trepp Research Director Stephen Buschbom told Bisnow earlier this year. Still, if loan modifications continue, it is a signal that the market’s health has yet to improve, he said. 

“If we do start to see some refinances happen at maturity, that would be a really nice, positive sign to see,” Buschbom said. “But at this point, I don't think anybody's baseline scenario would be that they're expecting to see more refinances for office buildings than they did last year.”.

Weitz Commercial Notes: This is absolutely staggering. I imagine banks will keep 'punting' by doing loan extensions so they don't have to take the loses on their books as well. The entire situation seems to be just kicking the can down the road. As some point, the music has to stop and reality has to sink in, but it's hard to say when that will play out. The middle to end of this year seems like a good guess. 

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate Broker. If you need to restructure debt, or seek a loan extension, consider contacting a Snohomish County Real Estate Debt restructure attorney. 

Our Firm: 

Weitz Commercial
108 Union Street
Snohomish, WA 
t: 206.306.4034

CNBC - Commercial Real Estate will be a 'dull pain'.

Interesting interviewing with Mega Commercial Owner Richard LeFrak discussing commercial real estate issue and further prognosis. I'll highlight the key items below. 

* Apartment rents are starting to firm up again as "everyone is working";

*  "We are in an unvirtuous cycle as no-one knows what anything is worth, and thus its hard to get financing. Commercial Real Estate lives on debt so if debt is unavailable, its a complete guess what anything is worth".

* Big vague bunch of facts; there is no money available; there will be severe loses by equity owners and some financial institutions. 

* Why have we avoided real trouble in commercial real estate? "The reality of the problem is going to be more obvious". 

* "We are going to see more and more problems in the next 12-24 months. I don't think there is a 'magic bullet'. 

*Even the distress funds have not been that active yet. It will be a dull pain that won't change for awhile "unless rates go to 3-5% and everyone goes back to work. 

Weitz Take: finally a rationale and realistic mind in the media - we wholeheartedly agree that this is  situation will last awhile and may be worse than many predict. Time will tell, we believe people with extensive real estate portfolios should consider diversifying into other assets. 

For more information on Snohomish Commercial Real Estate, consider contacting Snohomish Commercial Real Estate broker. 

Our Firm

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Jan '24 CPI data hotter than expected.

AP- Inflation Data out for January; it was higher than expected which increases the likelihood that the Fed will keep rates high for awhile. 

Details and commentary below: 

Inflation rose more than expected in January as stubbornly high shelter prices weighed on consumers, the Labor Department reported Tuesday.

The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.

Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.

Excluding volatile food and energy prices, the so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively.

Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the rise. The index for that category climbed 0.6% on the month, contributing more than two-thirds of the headline increase, the BLS said. On a 12-month basis, shelter rose 6%.

Food prices moved higher as well, up 0.4% on the month. Energy helped offset some of the increase, down 0.9% due largely to a 3.3% slide in gasoline prices.

Fed officials expect inflation to recede back to their 2% annual target in large part because they think shelter prices will decelerate through the year. January’s increase could be problematic for a central bank looking to take its foot off the brake for monetary policy at its tightest in more than two decades.

Weitz- note that the Fed is openly saying they think rents/ real estate will lower this year. I suppose that's saying the 'quiet part out loud'. 

“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”

In recent days, policymakers including Chair Jerome Powell have said the broader strength of the U.S. economy gives the Fed more time to process data as it doesn’t have to worry about high rates crushing growth.

Weitz- time will tell on this. I think these rates have already started to hurt the economy but the "data" simply is reactionary. 

Market pricing before the CPI release indicated a tilt toward the first rate cut coming in May, with a likely total of five quarter-percentage point moves lower before the end of 2024, according to CME Group data. However, several Fed officials have said they think two or three cuts are more likely.

Outside of the jump in shelter costs, the rest of the inflation picture was a mixed bag.

Used vehicle prices declined 3.4%, apparel costs fell 0.7% and medical commodities declined 0.6%. Electricity costs rose 1.2% and airline fares increased 1.4%. At the grocery store, ham prices fell 3.1% and eggs jumped 3.4%.

Weitz - The market is reacting negative to this news as they perceive that rates will stay higher for longer. I personally this think is just the beginning of a long, negative stretch for the general economy. At some point, the inflationary data will turn flat to negative, but we will be in a 'deflation' or 'stagflation' scenario. At that point, the Fed will start to lower rates, but the damage will be done and its hard to turn around a deflationary spiral. Time will tell I suppose. 

 For more information on interest rates, consider contacting a Lake Stevens Mortgage Broker.