5 ms·

Landlords Face a $1.5T Commercial Real Estate Maturity Wall

51 points by petethomas 2y ago

client4 2y ago
https://archive.is/PEdw7 https://archive.is/PEdw7
breckenedge 2y ago
Hoping that this leads to lower rents in many places in the U.S.. Coupled with a multifamily construction boom, there should be a glut of nice, new apartments for rent.
- mcs5280 2y ago
  They will be bailed out before rents are allowed to decrease. Number only goes up now
  - giantg2 2y ago
    Whether they're bailed out or not has nothing to do with rent going down. Unless the tenants own it, or the government subsidies it, the cost will pretty much be the same or higher. Even if the new owner gets it at a discount, the taxes higher rates, desire for profit, and overhead will still put it in a similar price range.
- devjab 2y ago
  A lot of these projects are financed with rent projections as part of their valuation to lock in loans and attract investors. So lowering rent wouldn’t be an option as it would make the problem worse. I think the most likely outcome is that the various investment banks and their lenders will come to agreements on loans. If the problem gets too big the various governments will bail them out, but most likely a few will buckle and have their projects picked up by others with no real change happening. If you want cheaper rent you’re going to need political intervention.
  - kaonwarb 2y ago
    If you want cheaper rent you're going to need more housing. If political intervention leads to more housing, great.
    - deleted 2y ago
      [deleted]
  - washadjeffmad 2y ago
    Occupancy rates for MFDs that used RealPage are still below the historical failure thresholds. The only problem lower rents would create is reducing the return for investors. If the government only bails out small landlords, that's fine, otherwise it'll open up the market to complete capture by large investors.
  - lotsofpulp 2y ago
    > A lot of these projects are financed with rent projections as part of their valuation to lock in loans and attract investors I would like to see proof of this. All the commercial backed mortgages I have been privy to come with debt service coverage ratios, which can trigger default if total cash flow is not as expected. Some rent is always more than no rent. Lenders aren’t fooled by property owners earning less money, but advertising higher than market rate rents to prospective tenants. https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp The only question is if the lender wants to trigger the default and take over dealing with the property, and many times they don’t, and prefer to renegotiate the terms of the loan.
    - tw8345 2y ago
      Extend and pretend is the name of the game. If the lender triggers a default they will be stuck with the property and have to take the large balance sheet loss. Its generally better for them to pretend everything is fine until the property owner cant make the payment and even then its usually better to renegotiate than it is to take the hit. There isnt a clearing mechanism that would force the loss to occur and the property to resell at new market value. Thats really the danger of low rates, it slows down market clearing forces and allows zombie companies to persist for a very long time.
- devbent 2y ago
  IMHO the problem is the majority of new multifamily construction is rentals only. Rentals ran by international firms suck the life out of communities, as people cannot be part of a local community when rent hikes can force them to move every couple of years. We need large scale multifamily housing for sale.
  - ant6n 2y ago
    How bout some rent controls (max annual increase)… works (for the most part) in Montreal. Also Germany has limits.
    - throwadobe 2y ago
      No, thanks.
    - Plasmoid 2y ago
      Generally speaking. It doesn't work.
      - ant6n 2y ago
        You mean Americans can’t make it work? Cuz it clearly works elsewhere to limit rent increases, so that renters don’t get pushed out of their residences.
  - justin66 2y ago
    > Rentals ran by international firms suck the life out of communities, as people cannot be part of a local community when rent hikes can force them to move every couple of years. You can't believe that only international firms... raise rent? That's extremely ridiculous.
Terr_ 2y ago
The millenial's prayer: "Please let the real-estate market crash in some way that doesn't affect my buying power, amen."
- exe34 2y ago
  i think at this point a lot of us just want to watch it burn so that we all get to suffer together for once.
  - bombcar 2y ago
    If you’re not moving in the foreseeable future, have a stablish job, and a fixed rate mortgage, property crashing doesn’t immediately or directly affect you. So there’s a decent number in the “let it burn” camp.
  - dgfitz 2y ago
    Random: way back I played world of warcraft, quit after the second expansion. Fired it back up for kicks a few years later and they had done an item stat adjustment. All my items were like… 80% reduced in stats. It was called a “stat crunch” or something to that effect. Almost seems like we need a real-life one of those.
  - deleted 2y ago
    [deleted]
- diogenescynic 2y ago
  There needs to be a reset, but I also don't see a strong driver for prices to drop in the most in demand areas--supply simply has not kept up with demand for decades... I don't see this changing until boomers start to die of and there are bigger demographic changes (i.e. an aging population like Japan).
- deleted 2y ago
  [deleted]
cyberax 2y ago
[flagged]
- epolanski 2y ago
  Suburban housing is one of the most inefficient ways to build cities. Suburbs make everything car centric. Everything is far, services are more complex and expensive to offer, public transport non existent. I really find suburbs from my experience in Ohio 10 years ago, as an European, an ugly distopia. And I haven't even got to other serious issues they have like absolute lack of socialization. Very little to no place to gather for local elders, dangerous for kids to walk/bike. What you find comfortable I find terrible example of humans building golden walls around them at the expense of their own well being.
  - cyberax 2y ago
    > Suburban housing is one of the most inefficient ways to build cities. First, it's not quite true. Second, the most efficient way to build cities is a camp with bunk beds. I'm personally not looking for the most efficient place to live. > Suburbs make everything car centric. And? The future is already here: Waymo in SF is the first example. In 10-15 years, Waymo (and its competitors) will solve the last disadvantages of car-centric life. Want to go to a bar? Just press a button on your phone and a self-driving taxi will drive you there (and then back). Not yet old enough to drive a car? Waymo can drive you where needed, with a parent's authorization. And you won't have to worry about missing the last bus, or to wait for the next one in the rain. > Everything is far, services are more complex and expensive to offer, public transport non existent. Public transit will die on its own. It's already stinking like it's been dead for a while. And services in the suburbs are NOT generally more expensive. Quite the opposite. My favorite example: one mile of Manhattan subway now costs more than 1000 miles of 6-lane freeway. > What you find comfortable I find terrible example of humans building golden walls around them at the expense of their own well being. Dense cities are misery centrals.
    - epolanski 2y ago
      I lived both in normal (not sure why you focusing on very dense ones) cities and suburbs, and I absolutely disagree. Go to cities like Copenhagen or Amsterdam or many other great cities around Europe you can easily walk or bike through. I don't want cities built around cars, whether it's waymo or FSD or you like to drive, they are congested hells. What you're describing is distopic hell of people interacting less and less. Cities should be built around humans, not roads intermitted by buildings with endless parkings and traffic. Public transit is only dead in US because all planning has focused on cars. Which is also the reason why you have so many hell holes and slums we don't. You can't afford a car, you can't even get to a job if you live in those suburbs. I have nothing against people wanting to live in their own house, but the endless suburbs I've seen in US are just unlivable, they're again, perfect for people wanting to distance themselves from other human beings as much as possible.
deleted 2y ago
[deleted]
QuantumGood 2y ago
A quarter may be tough to refinance, apts affected most ($95 billion at risk)
lambdasquirrel 2y ago
> “A lot of the equity is gone, but it’s an asset class that is pretty resilient over time. It’s underwritable, it just needs a capital infusion.” Please no. We have been in an asset bubble. Just let it go.
jarbus 2y ago
There are so many abandoned commercial buildings throughout some of the Boston suburbs. From what I understand, people keep the rents high to increase the value of the building so they can borrow against it, and leave the buildings unoccupied. I hope this changes soon
- bnjms 2y ago
  Where would one read about how the system works here? I’m not understanding why a lending body would lend against the theoretical value of a buildings rents rather than the actual maximum monthly rents over the last ~3 years.
klipklop 2y ago
They will 100% be bailed out. A lot of powerful people have cash stacked in commercial real estate. That is half the reason for RTO mandates. Has commercial real estate ever corrected in the last 30 years?

51 points by petethomas 2y ago

https://archive.is/PEdw7 https://archive.is/PEdw7

Hoping that this leads to lower rents in many places in the U.S.. Coupled with a multifamily construction boom, there should be a glut of nice, new apartments for rent.

mcs5280 2y ago
They will be bailed out before rents are allowed to decrease. Number only goes up now
- giantg2 2y ago
  Whether they're bailed out or not has nothing to do with rent going down. Unless the tenants own it, or the government subsidies it, the cost will pretty much be the same or higher. Even if the new owner gets it at a discount, the taxes higher rates, desire for profit, and overhead will still put it in a similar price range.
devjab 2y ago
A lot of these projects are financed with rent projections as part of their valuation to lock in loans and attract investors. So lowering rent wouldn’t be an option as it would make the problem worse. I think the most likely outcome is that the various investment banks and their lenders will come to agreements on loans. If the problem gets too big the various governments will bail them out, but most likely a few will buckle and have their projects picked up by others with no real change happening. If you want cheaper rent you’re going to need political intervention.
- kaonwarb 2y ago
  If you want cheaper rent you're going to need more housing. If political intervention leads to more housing, great.
  - deleted 2y ago
    [deleted]
- washadjeffmad 2y ago
  Occupancy rates for MFDs that used RealPage are still below the historical failure thresholds. The only problem lower rents would create is reducing the return for investors. If the government only bails out small landlords, that's fine, otherwise it'll open up the market to complete capture by large investors.
- lotsofpulp 2y ago
  > A lot of these projects are financed with rent projections as part of their valuation to lock in loans and attract investors I would like to see proof of this. All the commercial backed mortgages I have been privy to come with debt service coverage ratios, which can trigger default if total cash flow is not as expected. Some rent is always more than no rent. Lenders aren’t fooled by property owners earning less money, but advertising higher than market rate rents to prospective tenants. https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp The only question is if the lender wants to trigger the default and take over dealing with the property, and many times they don’t, and prefer to renegotiate the terms of the loan.
  - tw8345 2y ago
    Extend and pretend is the name of the game. If the lender triggers a default they will be stuck with the property and have to take the large balance sheet loss. Its generally better for them to pretend everything is fine until the property owner cant make the payment and even then its usually better to renegotiate than it is to take the hit. There isnt a clearing mechanism that would force the loss to occur and the property to resell at new market value. Thats really the danger of low rates, it slows down market clearing forces and allows zombie companies to persist for a very long time.
devbent 2y ago
IMHO the problem is the majority of new multifamily construction is rentals only. Rentals ran by international firms suck the life out of communities, as people cannot be part of a local community when rent hikes can force them to move every couple of years. We need large scale multifamily housing for sale.
- ant6n 2y ago
  How bout some rent controls (max annual increase)… works (for the most part) in Montreal. Also Germany has limits.
  - throwadobe 2y ago
    No, thanks.
  - Plasmoid 2y ago
    Generally speaking. It doesn't work.
    - ant6n 2y ago
      You mean Americans can’t make it work? Cuz it clearly works elsewhere to limit rent increases, so that renters don’t get pushed out of their residences.
- justin66 2y ago
  > Rentals ran by international firms suck the life out of communities, as people cannot be part of a local community when rent hikes can force them to move every couple of years. You can't believe that only international firms... raise rent? That's extremely ridiculous.

Terr_ 2y ago

The millenial's prayer: "Please let the real-estate market crash in some way that doesn't affect my buying power, amen."

exe34 2y ago
i think at this point a lot of us just want to watch it burn so that we all get to suffer together for once.
- bombcar 2y ago
  If you’re not moving in the foreseeable future, have a stablish job, and a fixed rate mortgage, property crashing doesn’t immediately or directly affect you. So there’s a decent number in the “let it burn” camp.
- dgfitz 2y ago
  Random: way back I played world of warcraft, quit after the second expansion. Fired it back up for kicks a few years later and they had done an item stat adjustment. All my items were like… 80% reduced in stats. It was called a “stat crunch” or something to that effect. Almost seems like we need a real-life one of those.
- deleted 2y ago
  [deleted]
diogenescynic 2y ago
There needs to be a reset, but I also don't see a strong driver for prices to drop in the most in demand areas--supply simply has not kept up with demand for decades... I don't see this changing until boomers start to die of and there are bigger demographic changes (i.e. an aging population like Japan).
deleted 2y ago
[deleted]

cyberax 2y ago

[flagged]

epolanski 2y ago
Suburban housing is one of the most inefficient ways to build cities. Suburbs make everything car centric. Everything is far, services are more complex and expensive to offer, public transport non existent. I really find suburbs from my experience in Ohio 10 years ago, as an European, an ugly distopia. And I haven't even got to other serious issues they have like absolute lack of socialization. Very little to no place to gather for local elders, dangerous for kids to walk/bike. What you find comfortable I find terrible example of humans building golden walls around them at the expense of their own well being.
- cyberax 2y ago
  > Suburban housing is one of the most inefficient ways to build cities. First, it's not quite true. Second, the most efficient way to build cities is a camp with bunk beds. I'm personally not looking for the most efficient place to live. > Suburbs make everything car centric. And? The future is already here: Waymo in SF is the first example. In 10-15 years, Waymo (and its competitors) will solve the last disadvantages of car-centric life. Want to go to a bar? Just press a button on your phone and a self-driving taxi will drive you there (and then back). Not yet old enough to drive a car? Waymo can drive you where needed, with a parent's authorization. And you won't have to worry about missing the last bus, or to wait for the next one in the rain. > Everything is far, services are more complex and expensive to offer, public transport non existent. Public transit will die on its own. It's already stinking like it's been dead for a while. And services in the suburbs are NOT generally more expensive. Quite the opposite. My favorite example: one mile of Manhattan subway now costs more than 1000 miles of 6-lane freeway. > What you find comfortable I find terrible example of humans building golden walls around them at the expense of their own well being. Dense cities are misery centrals.
  - epolanski 2y ago
    I lived both in normal (not sure why you focusing on very dense ones) cities and suburbs, and I absolutely disagree. Go to cities like Copenhagen or Amsterdam or many other great cities around Europe you can easily walk or bike through. I don't want cities built around cars, whether it's waymo or FSD or you like to drive, they are congested hells. What you're describing is distopic hell of people interacting less and less. Cities should be built around humans, not roads intermitted by buildings with endless parkings and traffic. Public transit is only dead in US because all planning has focused on cars. Which is also the reason why you have so many hell holes and slums we don't. You can't afford a car, you can't even get to a job if you live in those suburbs. I have nothing against people wanting to live in their own house, but the endless suburbs I've seen in US are just unlivable, they're again, perfect for people wanting to distance themselves from other human beings as much as possible.

deleted 2y ago

[deleted]

QuantumGood 2y ago

A quarter may be tough to refinance, apts affected most ($95 billion at risk)

lambdasquirrel 2y ago

> “A lot of the equity is gone, but it’s an asset class that is pretty resilient over time. It’s underwritable, it just needs a capital infusion.” Please no. We have been in an asset bubble. Just let it go.

jarbus 2y ago

There are so many abandoned commercial buildings throughout some of the Boston suburbs. From what I understand, people keep the rents high to increase the value of the building so they can borrow against it, and leave the buildings unoccupied. I hope this changes soon

bnjms 2y ago
Where would one read about how the system works here? I’m not understanding why a lending body would lend against the theoretical value of a buildings rents rather than the actual maximum monthly rents over the last ~3 years.

klipklop 2y ago

They will 100% be bailed out. A lot of powerful people have cash stacked in commercial real estate. That is half the reason for RTO mandates. Has commercial real estate ever corrected in the last 30 years?