4 ms·

The thing is the average duration of those loans is ~5yrs, so the ~15-20% of the portfolio that needs to refinance this year was stuff that got financed five ye

The thing is the average duration of those loans is ~5yrs, so the ~15-20% of the portfolio that needs to refinance this year was stuff that got financed five years ago, and probably has pretty decent loan to values given that the property values are in most cases up from where they were 5 years ago. It’s the stuff that was financed in the past couple of years that is going to be the most risky, but unless rents fell off a cliff, has a bit of runway to play out.

Melatonic 4y ago
Yea this sounded scary to me at first but now that I think about it does not seem all that bad. If you were dirt rich it is probably a great time to be in the skyscraper buying market
- jagged-chisel 4y ago
  Dirt poor. Filthy rich. I wonder where dirt rich fits on the scale. :-)
  - nebulousthree 4y ago
    Dirt rich is untouched money. Collected for the sake of it. Filthy is what you get once you've touched it enough.
    - chrisweekly 4y ago
      Are you making that up? Genuinely curious, as I'm agreed w/ parent you replied to on the "dirt poor / filthy rich" idioms.
      - deleted 4y ago
        [deleted]
      - nebulousthree 4y ago
        Call it a (rare) creative whim!
ThorsBane 4y ago
Very well said. Indeed, I think we'll all mostly escape from this unscathed. We as in anyone who didn't take on massive leverage in the last few years to try to become rich off of the pandemic bubble or to try to live it up on cheap money. Jeff Bezos gave excellent advice recently on avoiding large purchases right now if you can, like cars and houses. I think he knows that borrowing costs will go down, and general costs will come down to pre-pandemic levels as things level off and the excess currency floating around in the system from (necessary) pandemic stimulus gets siphoned off by slightly higher interest rates. Who knows, we may even see a scenario where the fed has extreme confidence in America's economic and military dominance globally and decides to reduce interest rates again once money supply is somewhat tightened again now that the pandemic has ended.
- srij 4y ago
  Jeff Bezos gave excellent advice recently on avoiding large purchases right now if you can, like cars and houses. I think he knows that borrowing costs will go down, and general costs will come down to pre-pandemic levels as things level off and the excess currency floating around in the system from (necessary) pandemic stimulus gets siphoned off by slightly higher interest rates. Can you please share a reference to Jeff's advice. Curious of the context.
  - kmonsen 4y ago
    https://jalopnik.com/we-regret-to-inform-you-jeff-bezos-is-right-dont-buy-a-1849807990 https://jalopnik.com/we-regret-to-inform-you-jeff-bezos-is-r...
rsync 4y ago
"... stuff that got financed five years ago, and probably has pretty decent loan to values given that the property values are in most cases up from where they were 5 years ago." Yes, that is the hope - and the narrative - but we're not talking about a minor correction here ... like a 10% haircut on building values. I suspect the current market for office space in SF is probably ~40% off and that's for class-A space. "... but unless rents fell off a cliff, has a bit of runway to play out." Rents have fallen off a cliff we're just pretending they haven't by refusing to lease the space at the prices the market would actually clear at. Building owners and management, etc., would rather have empty offices than establish new, lower rents by actually renting them. If they did actually rent the space at the market clearing price they would all get margin calls from their banks because their loan to value (LTV) ratios would blow up and their loans have covenants specifically calling out the LTV. This cannot last forever. Eventually someone is going to rent space at the market rates and building owners in SF will either need to show up at their bank with a 5 or 10 million dollar check ... or with the keys to turn in.
- balderdash 4y ago
  I actually agree with you, but SF class A office isn’t representative of the commercial market that these banks lend into. A lot of these loans are for a strip mall in Wichita, a suburban office building in charlotte, an urgent care clinic in Iowa, etc.

Melatonic 4y ago

Yea this sounded scary to me at first but now that I think about it does not seem all that bad. If you were dirt rich it is probably a great time to be in the skyscraper buying market

jagged-chisel 4y ago
Dirt poor. Filthy rich. I wonder where dirt rich fits on the scale. :-)
- nebulousthree 4y ago
  Dirt rich is untouched money. Collected for the sake of it. Filthy is what you get once you've touched it enough.
  - chrisweekly 4y ago
    Are you making that up? Genuinely curious, as I'm agreed w/ parent you replied to on the "dirt poor / filthy rich" idioms.
    - deleted 4y ago
      [deleted]
    - nebulousthree 4y ago
      Call it a (rare) creative whim!

ThorsBane 4y ago

Very well said. Indeed, I think we'll all mostly escape from this unscathed. We as in anyone who didn't take on massive leverage in the last few years to try to become rich off of the pandemic bubble or to try to live it up on cheap money. Jeff Bezos gave excellent advice recently on avoiding large purchases right now if you can, like cars and houses. I think he knows that borrowing costs will go down, and general costs will come down to pre-pandemic levels as things level off and the excess currency floating around in the system from (necessary) pandemic stimulus gets siphoned off by slightly higher interest rates. Who knows, we may even see a scenario where the fed has extreme confidence in America's economic and military dominance globally and decides to reduce interest rates again once money supply is somewhat tightened again now that the pandemic has ended.

srij 4y ago
Jeff Bezos gave excellent advice recently on avoiding large purchases right now if you can, like cars and houses. I think he knows that borrowing costs will go down, and general costs will come down to pre-pandemic levels as things level off and the excess currency floating around in the system from (necessary) pandemic stimulus gets siphoned off by slightly higher interest rates. Can you please share a reference to Jeff's advice. Curious of the context.
- kmonsen 4y ago
  https://jalopnik.com/we-regret-to-inform-you-jeff-bezos-is-right-dont-buy-a-1849807990 https://jalopnik.com/we-regret-to-inform-you-jeff-bezos-is-r...

rsync 4y ago

"... stuff that got financed five years ago, and probably has pretty decent loan to values given that the property values are in most cases up from where they were 5 years ago." Yes, that is the hope - and the narrative - but we're not talking about a minor correction here ... like a 10% haircut on building values. I suspect the current market for office space in SF is probably ~40% off and that's for class-A space. "... but unless rents fell off a cliff, has a bit of runway to play out." Rents have fallen off a cliff we're just pretending they haven't by refusing to lease the space at the prices the market would actually clear at. Building owners and management, etc., would rather have empty offices than establish new, lower rents by actually renting them. If they did actually rent the space at the market clearing price they would all get margin calls from their banks because their loan to value (LTV) ratios would blow up and their loans have covenants specifically calling out the LTV. This cannot last forever. Eventually someone is going to rent space at the market rates and building owners in SF will either need to show up at their bank with a 5 or 10 million dollar check ... or with the keys to turn in.

balderdash 4y ago
I actually agree with you, but SF class A office isn’t representative of the commercial market that these banks lend into. A lot of these loans are for a strip mall in Wichita, a suburban office building in charlotte, an urgent care clinic in Iowa, etc.