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.
Views: 82