Rents are already coming down almost everywhere. There’s a huge wave of apartment supply hitting basically every city other than NYC.
I hope that’s true, I’m going to be looking for a new apartment this year.
Anecdotally for a SFH rental in a medium city there is a huge amount of anchoring waiting for people to spend 54% of take home income instead of 48%.
Property rental companies do this so people don’t have to think about it. It’s annoying.
55% of markets in your link had rent coming down, that’s not “almost everywhere.” 17% flat, and thats after years of high single digit increases or worse. Also we’re talking about low single digit pullbacks, and rent exploding still in places where it’s still going up.
Also 2br prices aren’t coming down like 1br are. Guessing a lot of Millennials trapped as renters want/need an extra br or a SFH.
Good thing business geniuses like A-Rod own all the real estate. I mean his family struggled when he was younger, so what better way to give back than fuck up the real estate market even more!
A-Rod’s business empire started with a single purchase that was also inspired by his childhood.
“We were lifelong renters as a kid with my mom. And I remember we had to move every 18 months because the landlord kept raising the rent,” he says. “So one of my early prayers that was answered was, if I ever get an opportunity to change places with a landlord, I will.”
“I needed a little bit less than $50,000 for a down payment. And off we went,” he says. “And that was the start of what I’ve been doing now for almost 25 years. We’ve acquired over 20,000 multifamily apartments. And we’ve acquired almost 10,000 single-family homes.”
https://www.si.com/mlb/2023/09/12/alex-rodriguez-business-portfolio-baseball-childhood-lessons
Need a “this is fine” reacc
I want to be really really clear here. In your opinion as a banker you think there isn’t any real systemic risk here?
I haven’t been willing to own banking stocks because I don’t generally trust financial disclosures from people who are demonstrable experts in playing games with financial disclosures… And I don’t think I have any real insight into what exactly they are exposed to.
Seems to me like you could take a huge haircut even if the amount loaned was only 50% of the ‘value’ of the property… and I have real doubts that the real leverage ratios on these properties are actually that low.
Any time I see an asset that was considered ‘safe’ get obliterated I assume a banker is about to ask for a bailout lol. That’s not happening this time?
Suburban office is generally not financed by large banks. It’s financed by small and mid sized banks, insurance companies and via commercial mortgage backed securities. To the extent smaller banks have these loans, there will be losses but as long as they are not overweight in office it won’t bring them down or cause systemic trouble.
JPM has $4 trillion in assets. Wells has $2 trillion. Losing, in an extreme case, a combined $50 billion in CRE (which they won’t come close to doing) wouldn’t come close to causing wider pain.
People generally don’t realize how heavily bigger banks are regulated now. They have immense amounts of capital and are highly diversified.
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What kind of CRE paper was particularly attractive to insurance companies? It doesn’t seem like it would be a class that most carriers would consider nearly as good as cash…
They liability match. Their actuaries tell them how much $ (gross) they are going to need 30 years from now and they fund that liability by making a 30 year fixed rate loan secured by real estate. The risk/return profile is often better than bonds, they don’t care about liquidity and they get a big fee if rates drop the the loan is repaid early.
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And who owns these? Did anyone buy them with leverage? Are they doing default swaps on these? I thought they were doing them again, but under a different name?
SVB wasn’t that long ago and that came scarily close to causing a run on banks.
Man I will be so happy if the Saudi sovereign wealth fund ends up having a fuckton of this stuff. It sure seems like the kind of thing they would gorge on. They went hard into every other bad investment of the last three decades why would this be different?
I mean they go hard into like every single investment right? Hard to miss the landmines when you own a piece of everything.
They’re so hard up for places to put money, they’re starting golf leagues.
Yeah there was a lot of this for sale over the years. I could easily see the Saudi’s having been the buyer of last resort (that got used on a routine basis!) for CRE loans for years. But that’s just the funniest big bag holder I can think of. Man I hope that’s true.
Note I said “bigger” banks. The large banks have immense capital requirements now and are heavily regulated from a risk perspective.
When Lehman failed it had like a sub-3% capital ratio. JP Morgans Tier 1 capital ratio is 17%, and it holds far safer assets.
I know SVB wasn’t as big as JP, Chase, Citi, WF, and BOA, but it was big enough that there was fear of it crashing our whole economy. Partially due to its relationship with the tech sector, but still.
There are also 20+ banks in the S&P, so saying those handful are safe doesn’t necessarily mean this won’t be a major event for the stock markets.
The big question to me though is how many derivatives trades there are related to CRE. Like back in '08 you had different arms of the same investment bank betting against each other, and more money being bet on whether the mortgage backed securities would fail than money in the mortgage backed securities.
Barry Sternlicht of Starwood Capital Group, “The office market has an existential crisis right now… it’s a $3 trillion dollar asset class that’s probably worth $1.8 trillion. There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.”
The italicized is the scary part to me. Of course this clown is basically like, “This is why everyone has to come back to the office! Europeans are back in the office and their CRE is doing fine!”
Sorry real estate billionaire bro, it’s not everyone’s job to prop up your investments.
Fuck Barry. Dude took a now BK Medicare advantage scam public via SPAC.
The CEO paid his dad like 5m for “janitorial services.”
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Literally everyone involved in SPAC’s was a crook lol.
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