Commercial Landlords’ Problems Are Deeper Than in Past Down Cycles-office vacancy rate exceeding 2008 level

Commercial real estate has experienced its share of busts in recent decades, the Wall Street Journal reported Monday, adding, “This one is different.” Landlords are contending simultaneously with a cyclical market downturn and with secular changes in the way people work, live and shop, the WSJ reported. The sudden surge in interest rates caused property values to fall, while the rise of remote work and e-commerce are reducing demand for office and retail space.

Investors and economists say these two forces haven’t converged on this scale since the 1970s, when a recession followed surging oil prices and a stock-market rout while new technologies enabled jobs to move out of major cities. This time, the pandemic is largely responsible for accelerating the commercial property upheaval, according to the WSJ. The U.S. office vacancy rate reached a milestone in the first quarter when it rose to 12.9%, exceeding the peak vacancy rate during the 2008 financial crisis…. It is also bad news for the banks, pension funds and asset managers that are among the biggest lenders to and owners of commercial buildings, which means they could face losses for years to come. Commercial mortgages account for around 38% of the median U.S. bank’s loan holdings…You literally have trillions of dollars of investment that are suddenly just massively impaired…Office-building prices are down 25% since early 2022, estimates real-estate analytics firm Green Street. Prices of malls are down 19% since early 2022 and down 44% since 2016 “It is unknown how bad the commercial property downturn will get,” reported the WSJ…..(no it's not 'unknown'-if it's this bad now and Blackstone already having gated 2 of it's REIT products and once these properties drop a little more the Property Managers are just gonna let them go into default as that is easier than 'hoping' it won't be as bad but go ahead and make it sound like this is nuffin to worry about- and also don't see what First Republic Bank did today either >>18750811 pb First Republic Bank sheds 28.69% this morning and ended up @ (-49.37%) $8.10 -$7.90 after it's earnings release after yesterdays market close

https://finance.yahoo.com/quote/FRC

“Some analysts say it may well end up less severe than the previous two downturns, in the early 1990s and after the 2008 financial crisis, especially if the U.S. economy avoids a deep recession and interest rates start to come down quickly-'''once the FOMC stops/pivots rates will come down but that doesn't mean real estate is going to go back up..it may get a bounce but you still have these regional banks sitting on HTM (Hold to Maturity) losses. “But the deeper problems facing office and certain retail landlords mean building values are less likely to rebound to new highs the way they did after those previous meltdowns.” That’s bad news for economic growth and also for the banks, pension funds and asset managers that both lend on and own commercial properties. “You literally have trillions of dollars of investment that are suddenly just massively impaired,” Dan Zwirn, CEO of Arena Investors, a New York-based asset manager and real-estate investor, told the WSJ.

https://www.wsj.com/articles/commercial-real-estate-woes-run-deeper-than-in-past-downturns-e0c1f2b3

This was from yesterday but figured it would be best served on the day that Potato announced his running for 2024