Hadlock posted:

https://www.reuters.com/business/finance/overexposed-us-regional-banks-could-sell-commercial-property-loans-2023-05-17/ | https://archive.is/Ceand

quote:

21% of all commercial mortgages will default

A quick glance at St Louis fed shows about 10% delinquency rate in the early 1990s coasting down to about 1% right before 2007, and has been under 2% since 2014. Most recent peak was 8.9% in 2010

https://fred.stlouisfed.org/series/DRCRELEXFACBS

quote:

the investment firm that owns two of the city’s major hotels announced it would cease paying the loans and surrender the properties to the bank. Payments toward the $725 million non-recourse loan ceased in June, according to a news release from Park Hotels & Resorts Inc., which operates the Hilton San Francisco Union Square and the Parc 55 San Francisco.

...

The Hilton has 1,921 rooms, while the Parc has 1,024 rooms.

Hadlock posted:

Double edit: these two hotels represent 10% of the hotel rooms in San Francisco proper

Baddog posted:

Crazy, those are nice hotels. But I guess it's all a function of how much debt they were running (apparently a lot).

Strong Sauce posted:

SA didn't attach my image

Hadlock posted:

So I looked into this some more, the two hotels were bought using a "Non-Recourse CMBS Loan". So they didn't even have to look for a buyer and sell it at a(n additional) loss. They can just walk away and the underwriter can't go after their assets

Cyrano4747 posted:

I don't know piss all about how this stuff works, but the whole situation surrounding some of these big corporate loans right now smells like people were getting dumb when money was cheap and everyone was chasing insane poo poo for whatever returns they could get, and a whole lot of poo poo is going to tighten up as lenders realize "oh holy poo poo sometimes people don't pay back their loans and that's bad for us."

ultrafilter posted:

At the beginning of the pandemic people were worried about another credit crisis driven by collateralized loan obligations (CLOs), which are basically structured like collateralized debt obligations (CDOs) but involve commercial loans rather than residential mortgages.

Voodoofly posted:

Almost every commercial loan is non recourse to the borrower. Especially a CMBS loan which requires a bankruptcy remote SPE as a borrower. This isn’t some sort of special situation. It looks like the loan was maturing in November so presumably there is a large balloon payment and the borrower decided it wasn’t worth finding new financing to pay off the existing loan. Probably because the debt service for such new loan would be unfeasible.

In reality they will almost certainly do a workout or deed in lieu to pass it to a new operator. The real issue is going to be whether this causes a default under the franchise agreement and whether they will have to rebrand or possibly pay back some key money or other incentives under the franchise agreement. Considering the CMBS loan is near maturity I would bet they are past any milestone dates under the franchise agreement but maybe not.

This is going to happen a lot in the next couple years. CMBS loans are going to come due and most are amortized at least twice the actual term (ie 20 year amo for a 10 year loan) so expect a lot of people walking away when that balloon payment hits. It sucks but it’s how the system is meant to work: borrowers lose their only asset but otherwise walk away free, and the lender already sold the loan on the CMBS market so they got paid years ago. Now it’s just pension plans and mutual funds who bought the CMBS shares holding a loss and theoretically the b note buyer who eats the rest but yeah b note buyers are often the same people who receive these poo poo loans to begin with so buying your own risk at Pennie’s on the dollar isn’t really a losing game.

ultrafilter posted:

CLO vs CDO has a pretty high-level overview. The tl;dr is that there are some minor differences beyond the underlying securities, but they're both securitized bundles of loans (and CLOs maybe aren't as closely tied to commercial mortgages as I originally remembered). But in terms of how investors can get mired in good-looking crappy debt and what could happen if they do, the two classes of securities are pretty similar.

In looking for an overview, I found a few sources arguing that CLOs and CDOs are different because CLOs have never defaulted and I just kinda want to scream a little bit now.

Hadlock posted:

I don't think this is doomerism since it's not speculation but instead actual facts

https://www.kron4.com/news/bay-area/more-trouble-for-downtown-sf-as-owner-of-hilton-parc-55-cease-payments-on-hotel-properties/

For additional context, these are two of the larger hotels in the primary downtown SF tourist district, although kind of at the edge of it. It's still pretty incredible to see someone walk away from what ought to be a blue chip trophy property. Not one but two trophy hotels

Double edit: these two hotels represent 10% of the hotel rooms in San Francisco proper

quote:

“Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges — both old and new,” the press release read. “Record high vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future.”

kobeissi letter posted:

Office Vacancy Rates by City:

1. San Francisco: 31%
2. Los Angeles: 26%
3. Chicago: 24%
4. Phoenix: 24%
5. Cleveland: 23%
6. Denver: 22%
7. Philadelphia: 19%
8. Boston: 19%
9. Houston: 19%
10. Austin: 19%
11. New York: 17%
12. Dallas: 17%
13. Miami: 16%
14. Detroit: 13%
15. Seattle: 11%

Currently, 17% of all office space in the US is vacant.

Meanwhile, over $1.5 trillion of commercial real estate debt is coming due by 2025.

Most of this debt is held by regional banks and vacant properties are struggling to pay the debt.

quote:

https://www.theatlantic.com/ideas/archive/2023/06/commercial-real-estate-crisis-empty-offices/674310/

"With a third of all office leases expiring by 2026, we can expect higher vacancies, significantly lower rents, or both," Dror Poleg writes in an extensive piece for The Atlantic. "

...

Poleg points toward the recent collapse of Silicon Valley Bank and Signature as a precursor for what can happen to a number of others for real estate-related reason.

While Poleg calls some developers' choice to default now "partly a game of chicken," too many doing it will cause a massive hit to the U.S. economy.

"Most commercial loans were issued before the pandemic, when offices were full and interest rates were low," Poleg wrote. "The current landscape is drastically different: high vacancy rates, doubled interest rates, and nearly $1.5 trillion in loans due for repayment by 2025. By defaulting now, landlords leverage their remaining influence to advocate for loan extensions or a bailout."

Leperflesh posted:

would thousands of CRE loan defaults put an upward, or downward, pressure on interest rates for CRE loans? I feel like the answer is downward but I'm not confident.

KYOON GRIFFEY JR posted:

knowing basically nothing about commercial real estate what is a normal vacancy rate

KYOON GRIFFEY JR posted:

knowing basically nothing about commercial real estate what is a normal vacancy rate

quote:

Downtown Vancouver office vacancy rate jumps above 10 per cent
With many people wanting to continue working at home post-pandemic, more space could hit the lease market.

The office vacancy rate in downtown Vancouver has eclipsed 10 per cent for the first time in almost two decades, a trend driven by tech and other companies giving up leased space as they cut head count or let people continue working from home.

The rate is in keeping with the trend of double-digit figures in other cities.

In Toronto, the downtown office vacancy rate during the first quarter of 2023 was 15.3 per cent, which is the highest it has been since 1995. In Ottawa, at 13.2 per cent, and in Montreal, at 16.5 per cent, the rates recorded are all-time highs, according to CBRE.

Meanwhile, in San Francisco, the downtown office vacancy rate is at the highest recorded, at over 30 per cent of total space available for either lease or sublease. That is higher than the city experienced just after the dot-com crash in 2002 when it was at about 20 per cent.

The last time the vacancy rate in downtown Vancouver was over 10 per cent was in 2004 after the dot- com crash when start-up technology and online companies went bust.

...

Femtosecond posted:

What I've been hearing is that there's a staggering shortage of industrial land (and I posted about this a while back in the stock thread).

I'm a bit nervous about how much of that may be demand for giant dot com distribution hubs of which demand may evaporate, but in general, looking around at how cities have been so eager to pillage industrial land to turn into shiny new residential condos, I would definitely believe there's a shortage, and where there's a shortage there is money to be made.

Leperflesh posted:

I think retail's been under a harsh headwind for 25 years now, and amazon's share of the entire retail market is sobering.

ultrafilter posted:

I'm hoping that some of that vacant office space gets converted to apartments. It's not trivial, but every city on that list that I'm familiar with badly needs more housing downtown.

quote:

Using a proprietary tool, Gensler evaluated the physical factors that make for a good residential
building, including the building shape and size, ceiling heights, availability of elevators, neighborhood
context, proximity to transit, and other criteria. It found that only 20% of the buildings it evaluated across North America scored high for conversion. In downtown San Francisco, Gensler deemed 40% of the evaluated buildings to be good candidates. The best candidates were high-rise buildings with
floor plates of between 12,000 and 20,000 square feet.

pmchem posted:

Vanguard is using "machine learning" to predict federal reserve interest rate decisions:
https://advisors.vanguard.com/insights/article/whythefedwillnotcutratesthisyear

Sundae posted:

Sundae posted:

Sundae posted:

Duckman2008 posted:

The problem is that the standards on commercial vs residential real estate are very very different.

Residential needs individual plumbing and more importantly every residential needs a window. Think about how much they don’t have to worry about windows in something like a cubical setup.


There was a really really good article showing this that I can’t find, but long story short it def CAN be done but there is def a lot lot more to it than I would have anticipated for sure.

Discendo Vox posted:

It is very rarely physically, let alone financially, viable to do a commercial to residential refit. There's a reason each building that does it winds up getting standalone coverage.