There's an increasing amount of commercial real estate capital flooding the residential market because there have been warning signs of a commercial real estate bust for years now. This is partially driven by low interest rates because it's better for companies looking to park their millions in single family homes. Corporations buying homes en masse is a major factor here.
It seems unlikely that a commercial real estate crash wouldn't have second-order effects on residential. After all, if none of this commercial space is getting used, there is less of a reason to be interesting in the residential housing that surrounds said commercial space.
That last one has me really worried. A big dump of real estate on an already strained market with a lot of folks using it as investment. How many big buildings have we seen go up in the last year and remain basically empty.
Commercial real estate needs to pull its head out of its ass soon and start heavily discounting spaces or shit’s going to get real real.
Commercial real estate has been in crisis since covid started.
Higher interest rates are the final nail in the coffin. Commercial estate is generally bought through variable rate mortgages, not fixed ones.
This means that at the same time lenders are under a deadly combination.
On one hand, higher rates means that owners need to raise rent fees (which they could for more than a decade consistently) to pay down their much expensier mortgages.
On a second hand, there's no market for their property, and if there is, it's at way reduced prices than it was before.
Third, the property value crashes, thus putting even more pressure on these mortgages to be refinanced with banks unwilling to come to terms and negotiate.
You’re trying to scare people into thinking another real estate crisis on the scale of 2008/2009 is looming. Stop. The commercial real estate market is a fraction of the residential real estate market.
Further, actual local businesses in communities are benefiting from WFH workers.
I think it’s a mixture of corporate decisions and economic forces. For one thing, commercial real estate has skyrocketed even moreso than residential. If you’re a franchisee and your lease has shot through the roof but you can’t raise food prices then you’re going to demand corporate switch to cheaper ingredients and processes.
They'll try and justify it all sorts of ways, but what it really comes down to is commercial real estate. If this big return to the office push doesn't work, the commercial real estate bubble pops.
I can`t find a link to the story (thought it was tech crunch), but I came across an an article a few weeks back speculating on all of the commercial real estate on the west coast and the possibility of residential conversions of defunct commercial space to dramatically increase housing supply in larger cities practically overnight.
I scoured the net and did not find much additional information and even tried to call a Realtor I know to see if the red-flags in commercial RE are the ripple to follow post-covid and if the downward pressure on residential home prices by residential conversions is on the horizon.
The jury is still out (not enough data), but that may end up being a bright spot of the new normal(word soup) if millions of new units become available over the next 12-24 months.
Because commercial can keep getting loans to because the property price generally goes up. If lending tightens and prices stagnate you might, and I believe will, see a lot of comm defaults soon.
The ticking time bomb with commercial property is the debt. Many commercial real estate ventures are leveraged to the hilt. This is not unlike the housing crisis, although hopefully less painful because some underlying structural factors are less extreme (the government hasn’t felt obligated to buy the debt, unlike with home mortgages).
It's convoluted, but yes, it can cross over into the residential market in a few different ways (not as similar as '08 since '08 was largely due to poor lending actions (IMHO).
- As the commercial market is a large investment arm for financial institutions, a collapse in the commercial market can cause a credit crunch (banks don't have enough money to provide loans like they used to). Making it more difficult for people to get mortgages or loans for residential property.
- As the commercial market falls, investors and developers will begin looking toward the residential market for their investments. This could lead to an increase in residential housing availability. However, I believe this would exacerbate the trend of "build-to-rent" communities as it would provide the developer/investors with consistent, predictable, monthly income.
Ultimately, a "collapse" of the commercial real estate market would severely negatively impact the residential housing market due to consolidation. If renting out office towers is no longer profitable, why not rent out entire housing communities? And since banks are crunched and may have to further restrict their mortgage and lending practices, low and middle-class people could be further locked out of homeownership.
This is farcical. Commercial real estate is being bought up at very fast rates because, in every state that I have looked into, the deal for developers is getting better and better.
In a world of remote workers without retail, commercial real estate has taken a big hit.
In my area, that means that there are 4 malls that are planned for demo, and one with a lot of vacancies, not to mention untold strip malls ready for the same fate.
These properties are all being rezoned to mixed use or residential development. All of them.
That's what people have been predicting. The glut in commercial real estate has been talked about since 2006; the recession just gave it an extra push over the edge.
A lot of people say that subprime was just Act 1 in the financial crisis. Act 2 will be the bursting of Alt-A, prime, and commercial mortgages in the latter half of 2010. And the total dollar value of those loans is significantly higher than all the subprime loans outstanding in 2006.
You can see for yourself if you drive down Shoreline in Mountain View or any of office parks on 101. "Office space for Lease - Call 555-555-5555" signs everywhere. It's not unique to Silicon Valley either - I was just back to the Boston suburbs for Christmas Eve, and then down in NYC for Christmas, and all the commercial zones are filled with "For Lease" signs, one after the other.
Now is probably not the right time to buy because interest rates are at the highest levels in recent memory. Nobody in their right mind is selling right now unless they are being forced to out of financial desperation.
The commercial real estate crisis is a different problem based on the pre-2020 assumption that it was a good investment because remote work would never be widespread.
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