Landlords Face a $1.5T Commercial Real Estate Maturity Wall | Hacker News Reader

Landlords Face a $1.5T Commercial Real Estate Maturity Wall

bloomberg.com

51 pointspetethomas34 comments

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

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.

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.

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.

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).

https://archive.is/PEdw7

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

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.

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.

They will be bailed out before rents are allowed to decrease. Number only goes up now

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.

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.

If you want cheaper rent you're going to need more housing.

If political intervention leads to more housing, great.

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.

> 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

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.

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.

> Some rent is always more than no rent.

This depends on how hard it is to increase rent later. A lot of these projects are funded on a mix of low interest loans and investor money. Sometimes mixed with own funds. This poses two issues right now, one is that low interest rates is hard to come by, the other is that investors can now get close to the 5-7% returns by going with much safer options.

Low rent being better than no rent is a consumer perspective to the financing of these projects. What they sell isn’t actual income, it’s projected income and returns and if you lower rent those change. When they change investors are less likely to repeat business, which means your primary business (which isn’t to supply housing but to sell investments) goes down. So it’s much better to simply wait things out, at least for a 2-5 year period. If you have liquidity you can even bet on outlasting competition and buying their projects cheap.

Banks on the other hand aren’t fooled, but they’ve also loaned you so much money when the interest rates were basically 0. Interest rates that you didn’t lock down because it might go lower. Now that your loans are suddenly millions, if not billions, more expensive than projected you probably can’t pay and if you can you certainly don’t want to. So you work out deals with the banks out of mutual interest in keeping the “pretence” going because what you’re both making money off is the flow of money.

You’re going to see something similar happen in the green energy industry unless governments up their tariffs.

Banks aren’t in need of government bailouts here the 1.5T is more for shock value than an actual issue. “$95 billion of the US properties in distress or at risk of becoming so”

If hypothetically 50B in loans goes bad that’s a minor issue spread across the industry.

In the past, political intervention in such matters has always led to bailouts and unnecessary regulations that disproportionately affect the general consumer instead of the actual parties of interest.

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.

How bout some rent controls (max annual increase)… works (for the most part) in Montreal. Also Germany has limits.

No, thanks.

Generally speaking. It doesn't work.

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.

> 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.

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?

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

> “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.

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