Tuesday, February 20, 2024

Office Market Optimism?

Bisnow.com article on “Optimism for office market”. Despite my typical negative commentary on the intermediate future for CRE and the economy, I also do my best to remain as neutral as I can be. As such, here’s an article on optimism for the office market from Bisnow.com.

AP- Though sentiment around the office market has sunk drastically, some economists believe that the fears of an urban 'doom loop' might be too extreme.

Although the office market has faced record-high vacancies and falling values, experts on a panel at the National Association for Business Economics conference in Washington, D.C., this week said there are several signs that major cities can avoid financial crisisMarket Watch reported.

“Intellectually, based on the data, we’ve concluded no doom loop fears here. The industry can make its way through,” Moody’s Analytics Deputy Chief Economist Cristian deRitis said at the event, according to Market Watch. “There is quite a bit of capital in the system. The distribution of CRE loans is not just concentrated in banks."

Erin Patterson, global co-head of research and strategy for real estate at Manulife Investment Management, said there are other financing options out there that are helping and banks have been open to working with borrowers to create value for office buildings.

“That’s an escape hatch from this doom loop,” Patterson said at the event, according to Market Watch. 

The term "doom loop" comes from the vicious cycle that occurs when people begin to leave cities, which leads businesses to close and cities to lose tax revenue. This, in turn, leads these cities to cut services and raise taxes further driving people out. 

Other economists think this possibility should be taken more seriously, as it could lead to devastating impacts on major metro economies.  

As the remote work trend continues, people aren't coming into downtown offices at the same levels as they did pre-pandemic, which has caused office values to drop and led to economic pain in many major cities. 

"These commercial property tax revenues are an important component of the budget of local governments, which means less money for police departments, trash collection and some people are going to decide that the quality of life has deteriorated too much and they want out," Columbia Business School professor Stijn Van Nieuwerburgh said last month on 60 Minutes.

Van Nieuwerburgh added that the top 10 U.S. cities have lost over 2 million residents in the last three years, taking with them the tax revenue that these cities rely on.

Boston is projected to face a $1.5B revenue shortfall in the next five years due to declining office values, a new report found this week, while D.C. has seen a 'shocking' plunge in office values and is expected to lose hundreds of millions in tax revenues. 

Weitz Take: This article is pretty funny. The title and start give an ‘opinion’ that things may turn out fine, and then goes on to cite data that would objectively lead to a very different conclusion. In an effort to be positive, I’ll say that the next few years will vary market to market so to paint a broad stroke of doom and gloom would be irrational. I think there are some smaller submarkets that could perform well that have untapped potential as of now.

For instance, my area of Snohomish County, WA, while I don’t believe it will be immune from all negativity has considerable room to grow given current zoning opportunities as well as companies looking for more affordable space than what they could find in areas of Seattle, Bellevue, Etc.

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate broker.

Contact us Today

Weitz Commercial
Scott@WeitzCommercial.com
t: (206) 306-4034

Monday, February 19, 2024

Bank Term Funding Program (BTFP) Basics

 

Remember those bank failures nearly a year ago that had the banks being turned on their heads? Signature Bank, Silicon Valley Bank, etc. What happened to that concern. Things don't seem to have improved much, but the banks all seem fine. What happened. Well, I'll be honest - I wasn't blogging about economics back then and this even went past my radar ..... BUT ..... this is pretty incredible.... here's a direct overview from the Federal Reserve website. The Fed funneled an extraordinary amount of loans to banks in the form of the Bank Term Funding Program (BTFP). 

On March 12, 2023, the Board of Governors of the Federal Reserve System (Board), by the unanimous vote of its six members and with the approval of the Secretary of the Treasury (Secretary), authorized each of the 12 Federal Reserve Banks (Reserve Banks) to establish and operate the Bank Term Funding Program (BTFP) under section 13(3) of the Federal Reserve Act (12 U.S.C. § 343(3)). The BTFP makes funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

Here's the data they are required to post: 

 As of March 15, 2023: The total outstanding amount of all advances under the BTFP was $11,942,528,000.  The total value of the collateral pledged to secure outstanding advances was $15,885,798,000. The amount of interest, fees, and other revenue or items of value received under the facility, reported on an accrual basis, was $662,000.

March 2024 Data

As of January 31, 2024: The total outstanding amount of all advances under the BTFP was $165,237,527,000.

February 2024 Data

The total value of the collateral pledged to secure outstanding advances was $204,762,040,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.

So let me get this straight, in less than 12 months, they have issued $165,237,527 to the banks with unclarified payoff periods (as far as I can tell). 

Call it what you want, but this is nothing short of a bailout. This program ends soon and frankly, the economic situation is the same (if not worse) in terms of items banks have loans out like Commercial Real Estate. 

It will be interesting to see how the banks progress when this program ends. I have to think we will see another round of failures and/or bailouts. 

For more information on Snohomish County Real Estate, consider contacting a Commercial Real Estate broker


Friday, February 16, 2024

Foreclosure Filings on the Rise Nationwide


AP - Article on Nationwide increase in foreclosure filings. Key points and comment below. 

Foreclosure filings have seen an uptick, signaling potential distress for homeowners amid ongoing financial volatility.

The number of properties with foreclosure filings in January is up 5% compared to a year ago and 10% from December, according to real estate data provider ATTOM's January 2024 U.S. Foreclosure Market Report. The report shows there were a total of 33,270 foreclosure filings — default notices, scheduled auctions or bank repossessions.

"We observed a slight uptick in foreclosure filings, which may be partially attributed to the typical post-holiday progression of filings through the legal system," ATTOM CEO Rob Barber said. "However, other external factors may be at play such as escalating interest rates, inflation, employment shifts and other market dynamics. We remain vigilant in monitoring these trends to understand their full impact on foreclosure activity."

Foreclosure completions surged in 19 states. In January, lenders repossessed 3,954 properties through completed foreclosures, marking a 1% increase from the previous year and a 13% rise from December. It's the first month-over-month increase in completed foreclosures (REOs) since July.

Among the 224 regions with a population of at least 200,000, cities with the highest numbers of REOs included Detroit with 609, followed by Chicago with 194, New York City with 163, Philadelphia with 107 and San Francisco with 107.

Foreclosure rates across the United States remained concerning, with one in every 4,236 housing units experiencing a filing nationwide. Leading the pack in foreclosure rates were Delaware, where one in every 2,269 housing units faced a foreclosure filing, followed by Nevada with one in every 2,272 and Indiana with one in every 2,499.

Foreclosure initiations surged monthly and yearly as lenders started proceedings on 21,770 properties in January — a 6% increase from the previous month and a 5% rise compared to the same period a year ago.

Leading the tally of states with the highest number of foreclosure starts in January are California, which saw 2,719, followed by Texas with 2,613, Florida with 2,330, New York with 1,341 and Illinois with 763.

In major metropolitan statistical areas with populations of at least 200,000, New York led with 1,470 foreclosure initiations, trailed by Houston with 1,015, Los Angeles with 817, Miami with 804 and Chicago with 763.

Weitz Take: If you read this blog, you know I've been predicting this since rates increased dramtically and job loses (that the media hardly covers) started in the last 12-18 months. I think we are just at the tip of the ice berg on this. Buckle up. 

For help with foreclosure defense, consider contacting a Snohomish County Foreclosure attorney




Thursday, February 15, 2024

1/5 of all Commercial Loans set to mature this year.

 


Article from Bisnow.com on Commercial Real Estate Loans coming due in 2024. Highlights and overview below. 

Almost one-fifth of outstanding commercial real estate debt is due to mature this year, a total of $929B in debt obligations that will require borrowers to refinance or sell properties, according to new figures from the Mortgage Bankers Association.

The value of loans set to come due is up 40% from an earlier $659B estimate by the MBA, Bloomberg reports. The outlet attributes the sizable increase to an uptick in loan extensions and similar delays rather than an onslaught of new deals.

U.S. commercial real estate backs about $4.7T in debt, and investors, lenders and regulators have grown antsy as building values slide and loans mature, Bloomberg reported. Prices on commercial properties have fallen 21% from an early 2022 peak. Office prices have dropped most precipitously, sinking 35%.

Particularly in the office market, borrowers have largely been playing a game of loan extensions when possible, pushing harder decision points down the road. About 25% of office loans are coming due in 2024, according to the MBA.

While uncertainty around interest rates, unclear property values and questions about real estate fundamentals have suppressed transactions of late, it's more likely deals get done this year, Jamie Woodwell, head of commercial real estate research at the Mortgage Bankers Association, told Bloomberg. 

“This year’s maturities, coupled with greater clarity in those and other areas, should begin to break the logjam in the markets," Woodwell said in a statement.

This year could also bring more refinanced loans and fewer modifications on better-performing properties, Trepp Research Director Stephen Buschbom told Bisnow earlier this year. Still, if loan modifications continue, it is a signal that the market’s health has yet to improve, he said. 

“If we do start to see some refinances happen at maturity, that would be a really nice, positive sign to see,” Buschbom said. “But at this point, I don't think anybody's baseline scenario would be that they're expecting to see more refinances for office buildings than they did last year.”.

Weitz Commercial Notes: This is absolutely staggering. I imagine banks will keep 'punting' by doing loan extensions so they don't have to take the loses on their books as well. The entire situation seems to be just kicking the can down the road. As some point, the music has to stop and reality has to sink in, but it's hard to say when that will play out. The middle to end of this year seems like a good guess. 

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate Broker. If you need to restructure debt, or seek a loan extension, consider contacting a Snohomish County Real Estate Debt restructure attorney

Our Firm: 

Weitz Commercial
108 Union Street
Snohomish, WA 
t: 206.306.4034

Wednesday, February 14, 2024

CNBC - Commercial Real Estate will be a 'dull pain'.



Interesting interviewing with Mega Commercial Owner Richard LeFrak discussing commercial real estate issue and further prognosis. I'll highlight the key items below. 



* Apartment rents are starting to firm up again as "everyone is working";

*  "We are in an unvirtuous cycle as no-one knows what anything is worth, and thus its hard to get financing. Commercial Real Estate lives on debt so if debt is unavailable, its a complete guess what anything is worth".

* Big vague bunch of facts; there is no money available; there will be severe loses by equity owners and some financial institutions. 

* Why have we avoided real trouble in commercial real estate? "The reality of the problem is going to be more obvious". 

* "We are going to see more and more problems in the next 12-24 months. I don't think there is a 'magic bullet'. 

*Even the distress funds have not been that active yet. It will be a dull pain that won't change for awhile "unless rates go to 3-5% and everyone goes back to work. 

Weitz Take: finally a rationale and realistic mind in the media - we wholeheartedly agree that this is  situation will last awhile and may be worse than many predict. Time will tell, we believe people with extensive real estate portfolios should consider diversifying into other assets. 

For more information on Snohomish Commercial Real Estate, consider contacting Snohomish Commercial Real Estate broker

Our Firm

Weitz Commercial
Scott@Weitzcommercial.com
t: 206.306.4034

 

 

Tuesday, February 13, 2024

Jan '24 CPI data hotter than expected.


AP- Inflation Data out for January; it was higher than expected which increases the likelihood that the Fed will keep rates high for awhile. 

Details and commentary below: 

Inflation rose more than expected in January as stubbornly high shelter prices weighed on consumers, the Labor Department reported Tuesday.

The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.

Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.

Excluding volatile food and energy prices, the so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively.

Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the rise. The index for that category climbed 0.6% on the month, contributing more than two-thirds of the headline increase, the BLS said. On a 12-month basis, shelter rose 6%.

Food prices moved higher as well, up 0.4% on the month. Energy helped offset some of the increase, down 0.9% due largely to a 3.3% slide in gasoline prices.


Fed officials expect inflation to recede back to their 2% annual target in large part because they think shelter prices will decelerate through the year. January’s increase could be problematic for a central bank looking to take its foot off the brake for monetary policy at its tightest in more than two decades.

Weitz- note that the Fed is openly saying they think rents/ real estate will lower this year. I suppose that's saying the 'quiet part out loud'. 

“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”

In recent days, policymakers including Chair Jerome Powell have said the broader strength of the U.S. economy gives the Fed more time to process data as it doesn’t have to worry about high rates crushing growth.

Weitz- time will tell on this. I think these rates have already started to hurt the economy but the "data" simply is reactionary. 

Market pricing before the CPI release indicated a tilt toward the first rate cut coming in May, with a likely total of five quarter-percentage point moves lower before the end of 2024, according to CME Group data. However, several Fed officials have said they think two or three cuts are more likely.

Outside of the jump in shelter costs, the rest of the inflation picture was a mixed bag.

Used vehicle prices declined 3.4%, apparel costs fell 0.7% and medical commodities declined 0.6%. Electricity costs rose 1.2% and airline fares increased 1.4%. At the grocery store, ham prices fell 3.1% and eggs jumped 3.4%.

Weitz - The market is reacting negative to this news as they perceive that rates will stay higher for longer. I personally this think is just the beginning of a long, negative stretch for the general economy. At some point, the inflationary data will turn flat to negative, but we will be in a 'deflation' or 'stagflation' scenario. At that point, the Fed will start to lower rates, but the damage will be done and its hard to turn around a deflationary spiral. Time will tell I suppose. 

 For more information on interest rates, consider contacting a Lake Stevens Mortgage Broker


Monday, February 12, 2024

2024 Job Losses - Jan 1 to current according to WSJ

Below is an email from a mortgage industry insider discussing trends they believe will lead to lower interest rates by the Fed. I'm focused on the job loses, and these don't take into account 1099 Contractor positions lost. These numbers are fairly staggering. Bottom line is the reality of market doesn't match up with the government data currently where they like to say we are at "record low unemployment" - I fully expect the Fed to lower rates as well, but also predict they will be 'late to party' per usual. This is what happens when you base all your decisions on reactionary bureaucratic data rather than proactive, critical thinking. 

___________________________________________________________________

Hi All,


Thought you might like to see what's happening in the labor market and what that may mean to rates, inflation and the economy.  The Wall Street Journal posted a list of announced corporate layoffs since January 2024 to today. This info supports the deflationary trend we're heading into and how fast it may go.  With luck the Fed Reserve will see this scheduled decline in labor and start openly planning for lower rates.

The typical economic experience starts with job losses and then lower spending due to lack of income which inevitably leads to lower production and manufacturing.  The cycle continues until the economy is headed for, or is in, a recession or depression.  During this time and at some point, the Fed Reserve will acknowledge what's happening and then actively buy up mortgage bonds to lower mortgage interest rates and also lower the fed funds rate to "inspire" spending among companies and the public.  

The typical timeline for lower rates could be seen as: 

Economic Slowdown (indicated by layoffs and lower production) leads to  
       Central Bank Lowers Interest Rates (Monetary Policy)  leads to  
             Lower Borrowing Costs (for businesses and consumers) leads to  
                  → Lower Mortgage and Interest Rates 

And then the vicious and chaotic cycle begins again.  Only we hope the Fed will not let rates drop below 5% as 5.0% to 5.5% is a stable range and average rate seen over various timelines. 

This layoff list for February 2024 and January 2024 means the economy is still going to record significant job losses in 2024. The impact can take a few months to hit economic reports. 


These are just the big corporations reporting in.  Small businesses and those that provide services and products to these companies will be in the same downsizing mode.


February 2024

DocuSign

The e-signature company said it would lay off about 6% of its workforce, mostly from its sales and marketing teams.

Estée Lauder

The cosmetics company said it would cut up to 3,100 positions, or about 5% of its workers, following several weak quarters. 

Okta

The identification-software company is laying off 400 employees, or about 7% of its workforce, in its latest round of job cuts. 

Snap

In the Snapchat parent’s latest round of job cuts, the social-media company is reducing its workforce by about 10% to trim costs amid a soft advertising market.

Warner Music

Warner Music Group said it would cut 600 employees, or around 10% of its workforce. Chief Executive Robert Kyncl said in a note to employees that the changes would result in $200 million in annual cost savings, which would mostly be used to support the company’s core business. 

Zoom

The videoconferencing company said it would cut about 2% of its workforce. The layoffs come about a year after the company reduced its staff by 15%.


January 2024

Alphabet

Google laid off hundreds of employees in January in divisions including hardware and internal software tools, as the search giant continues to reverse its pandemic hiring spree. The company later in January said there were more layoffs to come but didn’t specify how many employees would be cut or which teams would be affected.

Amazon

The e-commerce giant is eliminating hundreds of jobs across its film and television studio and Twitch streaming platform in an effort to rein in costs. Its audiobook platform Audible and its Buy With Prime division for third-party merchants are also each cutting about 5% of their staff.

BlackRock

The world’s largest asset manager said it would layoff 600 employees, or around 3% of its total workforce. The company laid off about 3% in January 2023 as well. 

Citigroup

The bank said it would eliminate 20,000 jobs by the end of 2026 as part of a multiyear restructuring plan.

Discord

The free messaging platform popular with videogamers said it is cutting 17% of its staff.

Duolingo

 The language-learning software company cut 10% of its contractors and said it would use artificial intelligence to handle some content creation. 

EBay

The online marketplace said it would lay off about 1,000 employees, or 9% of its full-time workforce, as part of efforts to boost performance at a time of what it called rising competition and softer consumer spending.

iRobot

The smart vacuum company said it would cut 350 jobs, or 31% of its workforce, following the termination of its merger agreement with Amazon.

Macy’s

The retailer said it is eliminating 2,350 store and corporate positions, or 3.5% of its overall workforce excluding seasonal hires, to trim costs.

Microsoft

The tech company is cutting 1,900 employees, or about 8% of its videogame staff, after last year’s acquisition of Activision Blizzard. The layoffs affect less than 1% of total workforce.

PayPal

The digital payments company plans to trim 9% of its workforce this year. Last year, it said it would lay off 2,000 employees, or a 7% cut.

Rent the Runway 

The fashion subscription company said it is cutting 37 roles, or about 10% of its staff.

Salesforce

The cloud-based software company is laying off around 700 employees, or 1% of its workforce, according to a person familiar with the matter.

Sports Illustrated

The legacy sports publication announced major layoffs, according to its union, sparking turmoil at the magazine. The announcement came after Sports Illustrated’s publisher said it failed to make a payment to its licensor and lost its license to publish the magazine. 

United Parcel Service

The package-delivery giant plans to cut about 12,000 jobs this year amid a slowdown in its delivery business. The cuts will result in $1 billion in savings, UPS said.

Unity Software

The videogame company said it would lay off 1,800 employees, or about 25% of its workforce, following cuts by other game companies over the past year. 

Universal Music Group

The music company plans to lay off around 100 to 300 employees globally this year, according to a person familiar with the matter.

Wayfair

The online retailer is laying off about 1,650 employees, or 13% of its workforce, weeks after its chief executive sent a memo asking them to work harder has done several rounds of layoffs in recent years as pandemic furniture buying has cooled.

Xerox

The printer maker said it would trim its workforce by 15% had 20,500 employees at the end of 2024, according to regulatory filings.

Source WSJ - By Joseph De AvilaFollow

For more information on Lake Stevens Mortgage Needs, consider contacting a professional loan officer. 




Office Market Optimism?

Bisnow.com article on “Optimism for office market”. Despite my typical negative commentary on the intermediate future for CRE and the econom...