How bad will impending commercial real estate crash be?

[HawkeyesAndCubs1023]

An eventual commercial real estate crash seemed inevitable just a couple of months into the COVID pandemic as many organizations saw that they barely missed a beat as they shifted their employees to remote work. (I do think that there will be a terrible human cost to so many people working from home -- loss of friendships, community, sense of purpose, increased time staring at screens, etc. -- but we will set that aside for now).

I read an article in the Wall Street Journal today that focused on San Francisco -- the biggest "loser" after COVID due to insanely high cost-of-living, over-reliance on tech, substantial homelessness, and crime. San Francisco has a whopping 31% as much cell phone activity in its downtown as it did 4 years ago, by far the biggest drop of any large metro.

But here are some staggering commercial real estate statistics:

• A 22-story office building in downtown SF is about to hit the market and receive bids. In 2019, it was valued at $300M. Bids are expected to come in at around $60M
• $80B worth of loans backed by U.S. office buildings come due in 2023. Most will need to be refinanced at much higher interest rates.
• Wells Fargo recently said the volume of its "nonaccrual" (meaning the bank does not expect full principal and interest to be paid) increased from $186M to $725M in one quarter.

Obviously, there are going to be real estate development companies, and banks holding loans, that stand to lose bigtime over the next several years. How ugly do you folks think this will get, and will this have impacts on the economy at large?

 

[mnole03]

 

[bhawk24bob]

The buildings will still be standing, new owners will take them over, eventually a use will arise for them.

 

[DogBoyRy]

An eventual commercial real estate crash seemed inevitable just a couple of months into the COVID pandemic as many organizations saw that they barely missed a beat as they shifted their employees to remote work. (I do think that there will be a terrible human cost to so many people working from home -- loss of friendships, community, sense of purpose, increased time staring at screens, etc. -- but we will set that aside for now).

I read an article in the Wall Street Journal today that focused on San Francisco -- the biggest "loser" after COVID due to insanely high cost-of-living, over-reliance on tech, substantial homelessness, and crime. San Francisco has a whopping 31% as much cell phone activity in its downtown as it did 4 years ago, by far the biggest drop of any large metro.

But here are some staggering commercial real estate statistics:

• A 22-story office building in downtown SF is about to hit the market and receive bids. In 2019, it was valued at $300M. Bids are expected to come in at around $60M
• $80B worth of loans backed by U.S. office buildings come due in 2023. Most will need to be refinanced at much higher interest rates.
• Wells Fargo recently said the volume of its "nonaccrual" (meaning the bank does not expect full principal and interest to be paid) increased from $186M to $725M in one quarter.

Obviously, there are going to be real estate development companies, and banks holding loans, that stand to lose bigtime over the next several years. How ugly do you folks think this will get, and will this have impacts on the economy at large?

Need to separate the types.
Office space hard to convert to residential will be worst. Sf, chicago, seattle, portland (see a pattern) will be gashed.
Commercial industrial will not see any problems in most areas.
Crains had a great article last week on what awaits chicago. Many foreclosures coming on hotels and office.

 

[OrlandNole]

Impending? Don't you mean imminent?

 

[SolarHawk]

We’re currently in the market for commercial real estate. Need mixed use office\warehouse in Pinellas county(Tampa bay). Its very difficult to find something suitable for us at a reasonable cost. I hope there is at least somewhat of a reset here and soon, but we are seeing substantial growth here and it seems unlikely it will ease any time soon if ever.

 

[OliverHoward]

The commercial real estate market is definitely going through some rough times. The pandemic has brought significant changes to how businesses operate, and it's affecting the market even today.
The stats you mentioned about the office building in SF and the loans due in 2023 are pretty staggering! It's clear that some real estate development companies and banks might face some tough challenges ahead.
As for me, I've been eyeing the real estate market for potential investments. It's a tricky time, but opportunities might arise if you keep a close watch and do your homework!
I've actually got this project in mind: hillockgreen-condo.com.sg. Looks promising, and I'm keeping my fingers crossed!

 

[binsfeldcyhawk2]

Bank Exposure to Commercial Real Estate Estimated at $3.6 Trillion

Banks’ commercial real estate holdings could prove calamitous as loans and securities rapidly come due.

therealdeal.com

Real-Estate Doom Loop Threatens America’s Banks

Regional banks loaded up on commercial real-estate loans and investments that are now a looming danger—and their exposure is more substantial than it appears.

www.wsj.com

 

[QChawks]

commercial warehouse space is stilling booming

office space not so much

 

[alaskanseminole]

The buildings will still be standing, new owners will take them over, eventually a use will arise for them.

The homeless can move in and claim squatters rights.

 

[DogBoyRy]

commercial warehouse space is stilling booming

office space not so much

This.
I was told banks are desperate to lend to leased warehouse and industrial facilities to make their loan sheets look better.

 

[Scruddy]

Bad.

 

[alaskanseminole]

commercial warehouse space is stilling booming

office space not so much

Well, AT&T just implemented a huge return to work effort. For the remote employees, you either move to Dallas or Atlanta or you find new employment. Our downtown SATX office is over flowing. My SIL has worked for Chase Bank since 2020...she answers calls on the night shift from her living room. She now has to report to the office 2x per week.