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It doesn't sound like much, I mean what does a billion buy you these days? A couple of villas and a yacht and you're done. Also, according to TFA, this is abou

It doesn't sound like much, I mean what does a billion buy you these days? A couple of villas and a yacht and you're done. Also, according to TFA, this is about 600 buildings, of which 224 might be problematic. What happens when they are not refinanced? They are owned by the bank just the same.

chrisco255 3y ago
This can be a "tip of the iceberg" type figure. If interest rates remain high or go higher and economy continues to slide or if the need for office space due to remote work is permanently reduced, then demand will continue to fall and then $117B can snowball into trillions rather quickly.
- mulderc 3y ago
  Economy continues to slide? US Q3 GDP was up +4.9% the economy is about as good as it has ever been.
  - wyre 3y ago
    There is more to an economy than GDP.
    - nindalf 3y ago
      Yeah, like unemployment, inflation, wages and so on, all of which are pretty good in Jan 2024.
  - Loughla 3y ago
    Why, then, is that not the reality for every day people?
    - ForRealsies 3y ago
      [dead]
    - edgyquant 3y ago
      Because there’s more to the average persons life than overall GDP growth.
    - kasey_junk 3y ago
      This is actually a very big topic in economics right now. By our usual metrics (not just gdp but many others) the economy is great. The top theories on why this hasn’t translated to how people feel are a) the metrics we collect aren’t that relevant to the lived experience (but if so why have they traditionally correlated to people’s feelings) b) the metrics have measurement error (but if so why can’t we find it?) or c) people’s feelings are more influenced by other things than the economy (such as their media consumption, societal changes, etc) and that carries over into the “vibes” measurement. But, by the measures we have about the broad economy things are pretty good.
      - Geisterde 3y ago
        Serious question, in what circles are those top theories? I am sure C plays into it, and I know I live in a bubble; but I would expect any list of this type to include something like: large scale upward wealth transfers from bailouts/stimulus in 2008/2009 and covid, which has resulted in zombie companies taking over major sectors of the economy; or, trade deficits caused by our money being the global reserve asset have hollowed out the industrial base, obviously economically but also spiritually as people have lost the jobs that made them feel like they contribute to society. Im not trying to get at you or something, I just genuinely want to know where people are talking like this, what do they think about, how do they see things, thats all.
        kasey_junk 3y ago
        It’s a very common topic in lots of venues. Here is the economist talking about it: https://www.economist.com/graphic-detail/2023/09/07/the-pandemic-has-broken-a-closely-followed-survey-of-sentiment https://www.economist.com/graphic-detail/2023/09/07/the-pand... But as a for instance on one of the things you mentioned, our trade imbalance is less now than it was in the early 2000s. US industrial jobs have been on a negative trend for more than 50 years! That doesn’t correlate with the split between sentiment and other metrics either.
        Geisterde 3y ago
        Thanks for the link; I find myself more sympathetic to the corollary of your second metric, that we are at a 50 year low in industrial work, to be a viable explanation; though ill admit my surpise that trade defecits are lower than the early 2000s, that ill need to dig into more.
  - nindalf 3y ago
    Vibecession. People are convinced there's a recession because everyone else says so.
    - Atheros 3y ago
      What is Gen Z, along with the other terminally-online older people going to do with themselves if there actually is ever another recession? Gen Z'ers entire teenage and adult lives have been in a period of huge economic growth which continues today. They have no concept of how bad a recession actually feels. I suspect that this is a contributing factor to the vibecession: younger adults don't know what recessions feel like. If this is the level of complaining happening during an economic expansion, what are they going to do in a contraction? When wages drop precipitously? When they send out hundreds of resumes and hear back on none of them? When having unemployed friends becomes ubiquitous? Or maybe the vibecession isn't real at all and virtually everyone saying we're in a recession doesn't actually believe it and is just virtue signaling support for poorer people?
  - mcmcmc 3y ago
    That’s nominal GDP, real GDP only increased about 2%. Inflation is starting to get under control but the ~3% average this year is still over the Fed’s target. We’re no longer in dire straits but “As good as it has ever been” is definitely a stretch. The dangerous part will be the effects of coming back from a zero interest regime. Foreclosure rates for example started rising last year for the first time since the GFC and in 2023 they increased roughly 18% YoY
NickC25 3y ago
The thing is - I'm not sure the bank wants to own any of those buildings, even profitable ones. It's a bank, not a real estate investment fund. The amount of money spent on upkeep, taxes, land, finding a buyer, etc... can be and often is quite significant and for a bank, that's capital that could be better deployed elsewhere (which also more often than not aligns better with the core functionalities of the bank).
- nradov 3y ago
  Obviously bank managers and loan officers prefer that borrowers pay as agreed. But lenders know that they will have to repossess a certain percentage of properties, and they have employees or contractors available to manage those until a sale. It's all expected and built in to the commercial lending business model.
ianai 3y ago
Agree. I could see this being a “do your business or get off the toilet” moment. One option is repurposing that real estate to better purposes, like residential or industrial depending on location. It would take significant amounts of investment, but that’s actually the market working as intended. I am aware of attempts to repurpose such properties, cheaply, to residential have generally sucked. That just indicates better, costlier options will need to be explored. High rises and high density living actually exist many places. Does not yet sound like a hair on fire/bailouts level problem. We would need to see some Ts instead of Bs for that. Then there’s the reality of the US economy still responding to the changes following the pandemic. Literally all modern markets have not experienced anything like this since the last pandemic was 1918. That was a very different time in international and national trade. The market is a hugely decentralized grouping of economies. Each economy itself composed of millions to billions of individuals making individual decisions with finite resources. That’s precisely the genius of the system. No single person or policy maker could take on and make all the most optimized decisions for all the people in the global market.
- rogerbinns 3y ago
  Lowering the value of commercial real estate would also be helpful. I know of two stores that had to shut because the landlord raised the rent significantly. The landlord did that because the value of the real estate is proportional to the rent rates. The stores stood empty for a considerable time. Nobody won.
  - seanmcdirmid 3y ago
    The bank judges loan viability based on the rental income of the property. Lowering rent in that case might cause the loan to become underwater (acknowledging lower income), and they are better off not renting at all than lowering the rent (not acknowledging lower income even if that means no income).
  - nayuki 3y ago
    A land value tax (Georgism) would alleviate that problem.
Aurornis 3y ago
> What happens when they are not refinanced? They are owned by the bank just the same. A fiend in CRE explained that defaulting on these debts is a calculated risk built in to the office owners' business models. They secure financing with the hope that the investment will pay off, but if it goes under then they let that specific building's isolated business fail. The bank takes ownership of the property and must sell it off at a discount. The same people who owned the building originally might then go back and bid on the same building again at the new, lower rate. Both the banks and the CRE operators understand that his is how the game is played, so it's priced in to the cost of financing (in theory). Letting the bank repossess a property is just a business decision.

chrisco255 3y ago

This can be a "tip of the iceberg" type figure. If interest rates remain high or go higher and economy continues to slide or if the need for office space due to remote work is permanently reduced, then demand will continue to fall and then $117B can snowball into trillions rather quickly.

mulderc 3y ago
Economy continues to slide? US Q3 GDP was up +4.9% the economy is about as good as it has ever been.
- wyre 3y ago
  There is more to an economy than GDP.
  - nindalf 3y ago
    Yeah, like unemployment, inflation, wages and so on, all of which are pretty good in Jan 2024.
- Loughla 3y ago
  Why, then, is that not the reality for every day people?
  - ForRealsies 3y ago
    [dead]
  - edgyquant 3y ago
    Because there’s more to the average persons life than overall GDP growth.
  - kasey_junk 3y ago
    This is actually a very big topic in economics right now. By our usual metrics (not just gdp but many others) the economy is great. The top theories on why this hasn’t translated to how people feel are a) the metrics we collect aren’t that relevant to the lived experience (but if so why have they traditionally correlated to people’s feelings) b) the metrics have measurement error (but if so why can’t we find it?) or c) people’s feelings are more influenced by other things than the economy (such as their media consumption, societal changes, etc) and that carries over into the “vibes” measurement. But, by the measures we have about the broad economy things are pretty good.
    - Geisterde 3y ago
      Serious question, in what circles are those top theories? I am sure C plays into it, and I know I live in a bubble; but I would expect any list of this type to include something like: large scale upward wealth transfers from bailouts/stimulus in 2008/2009 and covid, which has resulted in zombie companies taking over major sectors of the economy; or, trade deficits caused by our money being the global reserve asset have hollowed out the industrial base, obviously economically but also spiritually as people have lost the jobs that made them feel like they contribute to society. Im not trying to get at you or something, I just genuinely want to know where people are talking like this, what do they think about, how do they see things, thats all.
      - kasey_junk 3y ago
        It’s a very common topic in lots of venues. Here is the economist talking about it: https://www.economist.com/graphic-detail/2023/09/07/the-pandemic-has-broken-a-closely-followed-survey-of-sentiment https://www.economist.com/graphic-detail/2023/09/07/the-pand... But as a for instance on one of the things you mentioned, our trade imbalance is less now than it was in the early 2000s. US industrial jobs have been on a negative trend for more than 50 years! That doesn’t correlate with the split between sentiment and other metrics either.
        Geisterde 3y ago
        Thanks for the link; I find myself more sympathetic to the corollary of your second metric, that we are at a 50 year low in industrial work, to be a viable explanation; though ill admit my surpise that trade defecits are lower than the early 2000s, that ill need to dig into more.
- nindalf 3y ago
  Vibecession. People are convinced there's a recession because everyone else says so.
  - Atheros 3y ago
    What is Gen Z, along with the other terminally-online older people going to do with themselves if there actually is ever another recession? Gen Z'ers entire teenage and adult lives have been in a period of huge economic growth which continues today. They have no concept of how bad a recession actually feels. I suspect that this is a contributing factor to the vibecession: younger adults don't know what recessions feel like. If this is the level of complaining happening during an economic expansion, what are they going to do in a contraction? When wages drop precipitously? When they send out hundreds of resumes and hear back on none of them? When having unemployed friends becomes ubiquitous? Or maybe the vibecession isn't real at all and virtually everyone saying we're in a recession doesn't actually believe it and is just virtue signaling support for poorer people?
- mcmcmc 3y ago
  That’s nominal GDP, real GDP only increased about 2%. Inflation is starting to get under control but the ~3% average this year is still over the Fed’s target. We’re no longer in dire straits but “As good as it has ever been” is definitely a stretch. The dangerous part will be the effects of coming back from a zero interest regime. Foreclosure rates for example started rising last year for the first time since the GFC and in 2023 they increased roughly 18% YoY

NickC25 3y ago

The thing is - I'm not sure the bank wants to own any of those buildings, even profitable ones. It's a bank, not a real estate investment fund. The amount of money spent on upkeep, taxes, land, finding a buyer, etc... can be and often is quite significant and for a bank, that's capital that could be better deployed elsewhere (which also more often than not aligns better with the core functionalities of the bank).

nradov 3y ago
Obviously bank managers and loan officers prefer that borrowers pay as agreed. But lenders know that they will have to repossess a certain percentage of properties, and they have employees or contractors available to manage those until a sale. It's all expected and built in to the commercial lending business model.

ianai 3y ago

Agree. I could see this being a “do your business or get off the toilet” moment. One option is repurposing that real estate to better purposes, like residential or industrial depending on location. It would take significant amounts of investment, but that’s actually the market working as intended. I am aware of attempts to repurpose such properties, cheaply, to residential have generally sucked. That just indicates better, costlier options will need to be explored. High rises and high density living actually exist many places. Does not yet sound like a hair on fire/bailouts level problem. We would need to see some Ts instead of Bs for that. Then there’s the reality of the US economy still responding to the changes following the pandemic. Literally all modern markets have not experienced anything like this since the last pandemic was 1918. That was a very different time in international and national trade. The market is a hugely decentralized grouping of economies. Each economy itself composed of millions to billions of individuals making individual decisions with finite resources. That’s precisely the genius of the system. No single person or policy maker could take on and make all the most optimized decisions for all the people in the global market.

rogerbinns 3y ago
Lowering the value of commercial real estate would also be helpful. I know of two stores that had to shut because the landlord raised the rent significantly. The landlord did that because the value of the real estate is proportional to the rent rates. The stores stood empty for a considerable time. Nobody won.
- seanmcdirmid 3y ago
  The bank judges loan viability based on the rental income of the property. Lowering rent in that case might cause the loan to become underwater (acknowledging lower income), and they are better off not renting at all than lowering the rent (not acknowledging lower income even if that means no income).
- nayuki 3y ago
  A land value tax (Georgism) would alleviate that problem.

Aurornis 3y ago

> What happens when they are not refinanced? They are owned by the bank just the same. A fiend in CRE explained that defaulting on these debts is a calculated risk built in to the office owners' business models. They secure financing with the hope that the investment will pay off, but if it goes under then they let that specific building's isolated business fail. The bank takes ownership of the property and must sell it off at a discount. The same people who owned the building originally might then go back and bid on the same building again at the new, lower rate. Both the banks and the CRE operators understand that his is how the game is played, so it's priced in to the cost of financing (in theory). Letting the bank repossess a property is just a business decision.