In a commentary, Neil Callanan of Bloomberg highlighted, “The commercial real estate crash unfolding in the US is a natural consequence of quantitative easing.”
Callanan continued: ” … which intentionally pushed investors out of safer assets like bonds and into alternatives like private equity, malls, and warehouses.”
The journalist penned the note titled “The CRE Crash Is Part of the Price of Global Quantitative Easing” following the latest CRE rumblings with loan losses, reserve build, and dividend cuts announced by New York Community Bancorp, a regional bank with high exposure to multifamily and CRE lending across NYC. Also, sizable credit losses and/or write-downs of US CRE sparked chaos for lenders in Japan, Germany, and Canada as the dominoes began to fall.
Furthermore, Callanan referenced a National Bureau of Economic Research report revealing that 45% of all office loans are underwater. This report also cautioned that upwards of 300 regional banks could face solvency runs due to CRE turmoil at the end of the third quarter.
In a report last week, research firm Green Street estimated that appraised property values could sustain another 10% to reach fair valuations, which is bad news for lenders, particularly smaller ones with weak balance sheets.
X user Triple Net Investor posted the latest CRE catastrophe: “A 262k sq ft building in Ohio has just sold for $2.4 million, or $9 per sq ft.”
X user said, “Yes, that’s not a typo – it literally sold for $9 per sq ft.”
“The commercial real estate ‘correction’ has gone from concerning to an outright apocalypse, primarily impacting office properties in most cities across the US,” the user explained.
A 262k sq ft building in Ohio has just sold for $2.4 million, or $9 per sq ft
Yes that’s not a typo – it literally sold for $9 per sq ft
It was the former site of FedEx Custom Critical in Green, Ohio
The commercial real estate ‘correction’ has gone from concerning to an… pic.twitter.com/8yJMTg09Nc
— Triple Net Investor (@TripleNetInvest) February 9, 2024
Barry Sternlicht, chairman and CEO of Starwood Capital, warned last summer that the CRE storm is entering “Category 5 hurricane” strength. He recently gave his take on the situation:
“The office market has an existential crisis right now… it’s a $3 trillion dollar asset class that’s probably worth $1.8 trillion 1707784356.”
Barry Sternlicht just gave a VERY thoughtful interview about the growing troubles in commercial real estate:
Here’s what he had to say:
“We have a problem in real estate. In every sector of real estate, not just office, because of the 500 basis point increase in rates that was… pic.twitter.com/OZdrpxxBtq
— Triple Net Investor (@TripleNetInvest) February 1, 2024
So, what’s ahead for the office market?
Well, more turmoil: Analysts led by Morgan Stanley’s Ronald Kamdem warned the most significant headwinds for Class A and Class B/C is years of supply, well above pre-Covid levels.
Class A office has about 18 years of supply, compared with the 2015-19 average of 13 years.
“The supply risk picture at the national level remains concerning and implies vacancy rates will likely remain under pressure,” Kamdem wrote.
And what happens if these buildings can’t find tenants and office owners can’t find financing?
Well, as Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley, warned in a note days ago: The CRE crisis will be with us for a long time.