The Time Bomb Lurking in All Those Empty Office Buildings

How much do you think you can buy this for 13 shillings? The problem is that it comes with at least $800 million in debt. It's the kind of thing that's happening a lot right now and that's a big problem because a global housing crisis can quickly spread to the rest. of the economy Office

buildings

, hotels and other commercial real estate projects around the world are going bankrupt or being sold at bargain prices, and an investor has warned that the industry could face $1 trillion in losses. This is the biggest state crisis since 2008. There is too much

office

space around the world now redundant and that is why we are seeing such massive drops in value.

There is a building in Manhattan owned by Blackstone that is trading at a discount of about 50% on the Aon Center loan the third highest The building in La sold in December at a 45% discount compared to what it sold for a decade earlier. There have been Chinese developers who have had problems and some of them have also been threatened with the loss of their

buildings

, so this is happening all over the world and will continue to happen, so what exactly happens at the center of all of this is how most commercial real estate projects are financed, so many of these buildings are largely financed with debt.

In a game of Monopoly you can't win money if the property has a mortgage, but in real life owners use rental income to pay off debts. If there are no tenants and there is not enough money, then the owners have a problem and the banks lend them money that will not generate jobs for the economy. losses from those banks, less credit available, which means less investment in things like factories, warehouses, growing your business and then in turn potentially more job losses because instead of the economy growing, the economy starts to slow down. The roots of the 2008 financial crisis also lie in falling property values.

Many banks were exposed to extremely risky lending for subprime mortgages tied to residential housing, primarily when a region entered a recession. This

time

it is more like the Savings and Loan crisis that hit the US in the 1980s and 1990s, where again the small regional banks are Advan trusts, lots of money for real estate, everything went wrong, SED loans and In the end they demolished a lot of properties, it saved more money than trying to find a buyer to buy them some of the solutions to the 2008 crisis that actually sold. the seeds of the current problems when the world was in financial crisis the central banks decided that the best thing they could do was cut interest rates to the point of almost giving away money to the people and the objective of that was to stimulate the economy, it became more difficult make money bonds, so investors looked for other places to invest in many cases, what happened is that the money went into alternative investments, so a lot of that money went into real estate.

At one point, we worked with the largest private tenant in New York City, which says a lot. They were larger than many of the major banks and that just showed the incredible growth and capital that was flowing into the space. Investors thought

office

s were a very attractive investment because they were betting on the fact that many growing businesses would be locked out. In these long-term leases and rents would continue to rise for the foreseeable future as new developments emerged, all that investment changed the face of cities around the world, but the owners didn't count on what would come next, the World Organization of Health has declared the Crown. virus a global pandemic oppositions were left completely dead and

empty

in major cities New York London San Francisco Toronto no one knew how it would play out or if people would return to the office for owners to reach agreements with their lenders called extend and pretend where it was the idea.

It is simply extending the loan as is and ignoring any possible short-term valuation that might have fallen due to the pandemic. The hope was that the offices would be full of employees again before the agreements had to be renewed, but that has not happened to us. Office occupancy rates today are about half of what they were before the pandemic, and while Asia and Europe are doing better than the US, they are still well below where they were . Landard in the US has $1 trillion in commercial real estate loans coming due this year if homeowners can't find the money then it could create massive losses for banks that we are already starting to see develop.

New York Community Bank Corp shares fell 41% in early 2024. It started with New York Community Bank, which increased the amount of money it had to set aside to cover potential losses related to commercial real estate and shortly after Azora Bank in Japan also saw the same thing with the fall of the shar because it was setting aside more money to cover losses related to its commercial real estate sector, especially offices, of course, we talk about Azora because yesterday there was a big fall that occurred in the Bank of Germany in Canada, where insurance companies and pension funds began setting aside more money or writing off more losses tied to commercial real estate. real estate in the US these writedowns in the US are starting to have global impacts and investors are reacting very aggressively when they see these losses being recognized stock prices are sinking bond prices are going down some of this was predictable low interest rates can create risks for people in The Federal Reserve has been concerned for at least 8 years about commercial real estate and the threat of a bubble, but in some ways it is the byproduct acceptable picture of the bigger picture of trying to cure the economic problems of the financial crisis.

What is done to prevent commercial real estate prices from skyrocketing is going to put a lot of pressure on the owners of these properties. Banking agencies are very focused on helping banks. What will really get more homeowners and lenders through this crisis is if interest rates start to rise. go down further to a level that is more manageable if that doesn't happen and the economy in the US in particular still seems to be doing quite well there is no really easy solution the financial stability system seems pretty secure at the moment one of the The reason for this is that lenders required larger down payments from borrowers, which means they have more protection, but things could still go very wrong if some banks have too much debt, they could go under and when banks start to go into panic could ensue sparks. a broader financial crisis