Category: CRE

CRE Fire! Office Valuations Plummet As Fed Raises Rates To Fight Inflation (US Gross Domestic Income YoY Fell To -0.8% In Q1, NOT A Good Sign!)

Commercial real estate (CRE), particularly office space, reminds me of the Arthur Brown tune “Fire!” except that Jerome Powell of The Federal Reserve is the God of Hellfire! While fighting inflation caused by … The Federal Reserve and insane Federal spending (aka, Bidenomics). Call this the Over, Under, Sideways Down economy. The top 1% are doing quite well, while the lower 50% of net worth households are struggling.

The Q1 2023 NCREIF Office property (value) index shows declining office value since Q2 2022 as The Fed began raising its target rate to combat inflation.

From Trepp, we have this shocking table showing the decline the average total value loss over the span of around a decade. The oldest buildings experienced the largest reduction in value of 60%, and the newest experienced the least (but quite substantial) reduction of 52%. Although the newest buildings performed the best relatively, their 52% value reduction is easily the most concerning, and displays truly how much distress is present in the office sector. This group has the highest percentage of Class A buildings, but its reduction value over the past decade is still approximately on par with buildings constructed over half a century prior. With north of $150 billion in securitized maturities beyond 2023, these trends set a gloomy tone for their future and the performance of office properties as a whole.

Then we have this alarming headline from Trepp: “Commercial Mortgage Sector Faces Another Wall of Maturities as $2.75 Trillion Rolls by 2027.” An estimated $528.7 billion of commercial mortgages mature this year, according to Trepp data, which projects that next year, maturities will increase to $532.8 billion. The projections are based on data for the first quarter compiled using the Federal Reserve’s flow of funds and made various assumptions regarding loan terms for each of the major lender categories. The data would indicate that the market is facing a wall, if not a mountain of maturities that would make the 2015-2017 wall of maturities look almost inconsequential. During that period, roughly $1.1 trillion of loans were scheduled to come due. But attention was focused on the CMBS market, as more than $335 billion of loans were set to mature during the period.

Well, REAL gross domestic income fell -0.8% YoY in Q1 2023 as M2 Money growth crashes. Not a good sign for the US economy or commercial real estate.

Here is the Trepp Report on declining office values.

Of course, office properties are suffering from almost out-of-control crime in major American cities and the desire of workers to work from home rather than commute to work in cubicles.

But never fear! We have massively corrupt and compulsive liar Joe Biden as President!! He is the President of The 1%! Not the other 99%.

Call him Deep State Joe! The bully from Delaware.

Bidenomics? Orange Juice Futures UP 192% Under Biden, Frozen OJ Up 40% Under Biden’s Reign Of Error (Even Fed Printing Debacle Can’t Fix This Problem)

I love orange juice! Unfortnately, as a diabetic, OJ is off limits. So I have to watch others drink one of my favorite beverages.

But like everything else under Bidenomics, orange juice is far more expensive.

Orange juice futures, the subject of the comedy “Trading Places,” are up 192% under Biden’s Reign of (Economic) Error. And frozen OJ is up 40%.

Sorry Joe, The Federal Reserve can’t print its way out your horrible economic grand plans.

Regular gasoline prices are soaring … again. And are now up 55% under Bidenomics.

On that surprising GDP report, we saw the 10-year Treasury yield spike to almost 4%.

Speaking of oranges and Florida sunshine …

Bidenomics At Work! US Pending Home Sales Crash -14.8% YoY As Fed Pushes Rates Up, Negative Growth For 24 Of Last 25 Months (Is Fed Chair Powell Actually Mr. Freeze?)

The Biden Administration is gushing about Q2’s Real GDP report of 2.4% QoQ. Wow, after trillions of dollars of stimulus spending and The Fed going wild with monetary stimulus, all we got was 2.4% growth??

But let’s turn the cameras on the housing market.

Pending home sales crashed -14.8% YoY in June.

Is Fed Chair Jay Powell actually Mr. Freeze? Here is Jay Powell looking at his printing press.

US New Home Sales Fall -2.5% MoM In June To 697k Units Sold (Thank The Fed For 23.8% YoY Growth!)

New home sales in June fell -2.5% from May to June to 697k units sold. But on a year-over-year (YoY) basis, new home sales are up 23.8%. Thanks largely to The Federal Reserve slow walking the shrinking of their massive balance sheet.

Too much monetary stimulus and The Fed’s failure to remove the Covid stimulus is now hitting new home sales.

Biden’s Mortgage Market! Mortgage Demand Falls 1.8 Since Last Week, Purchase Mortgage Demand Down -49% Since April 2021, Refi Mortgage Demand Down -87% As Mortgage Rates Up 115% (Hurts So Bad?)

Biden loves to brag about Bidenomics, or should I say selective stats like the labor market. But the mortgage market hurts so bad.

Mortgage applications decreased 1.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 21, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index 1.5 percent compared with the previous week. The Refinance Index decreased 0.4 percent from the previous week and was 30 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 23 percent lower than the same week one year ago.

Since April 2021, purchase mortgage demand is down -49%, refi mortgage demand is down -87% as mortgage rates are up 115%.

KJP “Hurts So Good” Presser: Prices UP 16.6% And Real Wages Down -3% Since Biden Took Office (Food UP 56%, Gasoline UP 52%, Mortgage Rates UP 153%) Hurt So Good???

Biden Press Secretary KARINE JEAN-PIERRE: “The American people are beginning to feel Bidenomics”

Prices are up 16.6% and real wages are down 3% since Biden took office.

Well, at least Jean-Pierre didn’t claim like her boss Joe Biden claimed that he “ended cancer as we know it.”

But getting back to Jean-Pierre’s claim that “The American people are beginning to feel Bidenomics.” She is right (for once). Americans are REALLY feeling Bidenomics. And it hurts SO BAD!!!

What hurts so bad? Food (CRB Foodstuffs) are up 56% under Bidenomics. Real weekly wage growth is down -90% since Biden assumed office. Regular gas prices are up 52%. And the 30Y mortgage rate is up a staggering 153%. Yes, Karine, this hurts so bad!

While real wages are down -3% under Biden and the real average weekly wage growth is down -90%. That REALLY hurts so good.

But Biden and KJP think that Bidenomics “hurts so good.”

A video of Bidenomics.

Case-Shiller National Home Price Index Slows To -0.46% YoY As Fed Withdraws Covid Stimulus SLOWLY (Mortgage Rates UP 151% Under Bidenomics, Taylor Rule Suggests Fed Rate Of 10.42%)

The Case-Shiller home price numbers are out for May. The national home price index is down -0.46% YoY as The Fed slows M2 Money growth into negative growth territory. No doubt Biden (and Karine Jean-Pierre) will take credit for slowing home price growth, although The Federal Reserve slowing monetary stimulus is mostly responsible.

The Fed is still slow walking shrinking its enormous balance sheet. Although The Fed is cranking up their target rate.

The Taylor Rule suggests a 10.42 target rate to cool inflation. They are only half way there!!!

CRE Storm? “Nobody Understands Where Bottom Is” For Commercial Real Estate (Fed STILL Slow To Remove Monetary Stimulus)

Where is the bottom for commercial real estate (CRE)?

Starwood Capital Group’s Barry Sternlicht recently told Bloomberg’s David Rubenstein about the ongoing crisis in the commercial real estate sector, equating it to a severe “Category 5 hurricane“. He cautioned, “It’s sort of a blackout hovering over the entire industry until we get some relief or some understanding of what the Fed’s going to do over the longer term.”

Currently, the biggest problem in the CRE space is sliding office and retail demand in downtown areas. Couple that with high-interest rates, and there’s a disaster lurking for building owners. According to Morgan Stanley, the elephant in the room is a massive debt maturity wall of CRE loans that totals $500 billion in 2024 and $2.5 trillion over the next five years. 

Senior markets editor for Bloomberg, Michael Regan, chatted with John Fish, who is head of the construction firm Suffolk, chair of the Real Estate Roundtable think tank and former chairman of the board of the Federal Reserve Bank of Boston, in the What Goes Up podcast to discuss the biggest problems in the CRE market. 

Fish warned that “capital markets nationally have frozen” and “nobody understands value.” He said, “We can’t evaluate price discovery because very few assets have traded during this period of time. Nobody understands where the bottom is.” 

For a sense of recent price discovery trends, we were the first to point out to readers of a wicked firesale of office towers in the downtown area of Baltimore City: 

As for the overall CRE industry, Goldman Sachs chief credit strategist Lotfi Karoui recently told clients, “The most accurate portrayal of current market conditions with Green Street indicating a 25% year-over-year drop in office property values.” 

Sooooo, Powell and The Fed will likely raise rates this week. And maybe a few more times over the next few months. And The Fed remains defiant about taking away the Covid monetary stimulus.

Bidenomics? Since January 2021, Regular Gasoline Prices Up 57% Under Biden, CRB Foodstuffs Up 55% As Strategic Petroleum Reserves DOWN -46% (10Y-2Y Treasury Curve Inverts To -102.45)

Jared Bernstein was VP Joe Biden’s former Chief Economist and is now chair of the United States Council of Economic Advisers. Pretty impressive! Except that Bernstein is not really an economist. He has a PhD in social welfare from Columbia University. In other words, Bernstein is a Progressive Marxist cheerleader, not a real economist. Perfect for The Biden Adminstration where they installed a small town Mayor with no experience (Buttigieg) as Transportation Secretary.

But Bernstein’s interview with Fox’s Shannon Bream on gas prices under Biden says it all about his economic acumen:

Top economic advisor Jared Bernstein tries and fails to brag about gas prices under Biden.

HOST: “…what about where we started? Because when [Biden] took office, it was $2.39/gallon. Now, it’s about $3.60/gallon…”

BERNSTEIN: “Yes, it depends on what your benchmark is.”

Bernstein’s answer reminds me of the infamous reply of President Clinton about having sex in the Oval Office with Monica Lewinsky: “It depends on what the definition of sex is.”

Well, Jared, here is the data.

Since January 2021, regular gasoline prices are up 57% under Biden’s and Bernstein’s Reigns of Error. CRB Foodstuffs are up 55% under Clueless Joe and Diesel prices 50% under Bully Biden. Meanwhile, the Strategic Petroleum Reserves is DOWN -46% under Hidin’ Biden.

Meanwhile, the US Treasury 10Y-2Y yield curve has inverted to -102.45 as it does prior to a recession. I would love to hear “economist” Jared Bernstein explain that!

The Chicago Fed’s National Activity index fell to -0.32 in June. That is negative readings for 6 of the last 8 months.

The Fed still hasn’t removed its monetary stimulypto from the market.

Summer Of Strikes? 650,000 American Workers Threaten To Walk Off Job (Bidenomics On Parade!)

Joe Biden loves to tout “Bidenomics” which is a top-down command economy model with massive Federal spending directed primarily at green energy. But remember that a pillar of Bidenomics is support for labor unions. But “Union Joe” will be remembered as “Inflation Joe” as inflation remains hot. But now the labor unions are threatening to stall the recent rise in real weekly earnings (finally above 0%!).

Tensions between employees and employers are heating up this summer. Bloomberg reports 650,000 workers threaten to walk off the job and picket in the streets to secure improved benefits, wages, and other conditions amid the worst inflation storm in a generation. 

So why is 2023 shaping up to be one of the biggest years of strikes in the US since the 1970s? Well, it didn’t happen overnight. Two years of negative real wage growth has crushed the working poor as they drained their savings and maxed out credit cards to make ends meet. 

Unionized workers have taken advantage of upcoming contract expirations with companies to bargain for better wages and benefits. Many unions say companies can boost wages because profits have been off the charts. 

This summer might go down in history as the “Summer of Strikes” because 650,000 American workers are threatening to walk off the job imminently (some have already hit the picket lines): 

A Bank of America analyst warned a United Auto Workers strike is at 90% odds of happening as union contracts with automakers Ford, General Motors, and Stellantis expire in September. Some logistics experts believe Teamsters will reach a deal with UPS, but that deadline (July 31) is quickly approaching. 

Labor historian Nelson Lichtenstein, who leads the University of California, Santa Barbara’s Center for the Study of Work, Labor, and Democracy, said this summer could “be the biggest moment of striking, really, since the 1970s.” 

What’s shaping up to be a summer of strikes comes as inflation spiked to levels not seen since the 1970s. The good news is that it has cooled in recent quarters. 

Still, two years of negative real wage growth crushed the working poor — many are in rough financial shape.  

So far, strikes have not had a broad economic impact, but that could change overnight. Increasing labor actions are happening across the Western world, also in Europe, for the same reason in the US, due to a cost-of-living crisis sparked by high inflation. 

Under O’Biden (the combined reign of economic errors of Presidents Obama and Biden), we won’t see any strike breaking for the good of the economy. Rather, the Biden Administration will be missing in action (or sending in Kamala Harris or Transportation Secretary Pete Buttigieg to do … nothing.