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Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

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Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#21

Post by wewtyflakes »

rcme wrote: post #11
wewtyflakes wrote: post #6

I don't know that I agree with the author's assessment that this is "disgusting"; it just seems like a shift in wealth from bankers to commercial real estate companies, and I am not particularly sympathetic to either. Maybe there is another angle here.

Maybe you missed the part about a bail out. That's not a transfer of wealth from bankers to commercial real estate companies, it's a transfer of wealth from the tax payers to the real estate companies.

Wouldn't the government be taking an ownership stake in the banks at the banks' reduced market cap? How does the taxpayer lose out in this scenario?

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#22

Post by flutas »

anoonmoose wrote: post #8
wewtyflakes wrote: post #6

I don't know that I agree with the author's assessment that this is "disgusting"; it just seems like a shift in wealth from bankers to commercial real estate companies, and I am not particularly sympathetic to either. Maybe there is another angle here.

I also came here to comment on that word choice. It's disgusting to activate a clause of a contract that both parties agreed to, when neither party seems to have a substantial power imbalance relative to the other? Seems pretty odd to me.

I think I could say that it's disgusting if you view it as a mafialike group getting ready to cause a financial shock for their own gain to the detriment of everyone else...

But that's a hyper specific view point that I doubt many hold, but I feel like that's the view the author has.

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#23

Post by N_A_T_E »

anoonmoose wrote: post #8
wewtyflakes wrote: post #6

I don't know that I agree with the author's assessment that this is "disgusting"; it just seems like a shift in wealth from bankers to commercial real estate companies, and I am not particularly sympathetic to either. Maybe there is another angle here.

I also came here to comment on that word choice. It's disgusting to activate a clause of a contract that both parties agreed to, when neither party seems to have a substantial power imbalance relative to the other? Seems pretty odd to me.

That's not the disgusting part. It's the assumption by banks that they will be bailed out (by us) for their bad investments if the investments are large enough.

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#24

Post by ganeshkrishnan »

thinkingkong wrote: post #9

I wouldnt be surprised if it turned out to be bigger than 2008 by some order of magnitude. But has the market priced this in yet? Are there financial instruments that you can monitor to see what big players might be thinking? Im also not really optimistic anyone will stay angry enough for anything to happen. The news cycle burns so hot right now that people seem to be OK with paying almost double for food and still p…

>But has the market priced this in yet?

The market is currently on a blind bull run stampede because too many retail are short and holding puts or outright shorts. This was exacerbated few months back when Burry tweeted "SELL" and millions or retail traders straight out started shorting stocks and buying puts.

SPX and TSLA is running up for absolutely no reason beyond their wildest EPS just to bankrupt the retail. I suspect it will keep running for months until all the retail have either bought in to the bull run or died of trying to short the market.

When that happens is when the music stops for this game of musical chair.

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#25

Post by crazygringo »

Putting aside the nonsense of "absolutely disgusting", this is incredibly vague and exceedingly implausible. Critiquing:

> They say the largest property companies in the US (they named names, I can’t) are raising huge amounts of money... if they stop paying the loan, and the bank gets the building back, the bank cannot sue them for the remainder of the loan.

For this reason, banks generally do not loan more than what the building is worth. Banks aren't dumb, they're not going to fall for something as obvious as this.

> Banks will take hundreds of billions to trillions of dollars in losses. And literally everyone knows the US government will have no choice but to bail them out, as usual.

Not really. They sure didn't bail out Lehman. And the owners of SVB lost all their equity. Bank owners do everything they possible can to avoid failing and being "bailed out".

> Then, when the banks turn around and sell these properties for pennies on the dollar, these same property companies that caused the problem in the first place are going to buy better properties for cheaper and end up better off than they were before.

Properties are sold at auction or similar and go to the highest bidder. It's certainly not "pennies on the dollar".

In sum, none of this makes any sense.

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#27

Post by eli »

CryptoBanker wrote: post #19
wewtyflakes wrote: post #6

I don't know that I agree with the author's assessment that this is "disgusting"; it just seems like a shift in wealth from bankers to commercial real estate companies, and I am not particularly sympathetic to either. Maybe there is another angle here.

Do you really think bankers are lending their own money here? They’re lending yours and mine

But if the bank fails, the bank owners get wiped out.

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#28

Post by rfgmendoza »

bell-cot wrote: post #2

Sounds like the only actual bad stuff is the (hypothesized future) fat government bail-outs of the idiot banks - which allowed "just give us back the keys and you can walk away" clauses in a bunch of big-money contracts. Obvious (if politically impossible) fix - banks that go bust become U.S. Gov't. property. Bank executives are fired as unneeded/incompetent, and their stock options become worthless paper. U.S. DoJ g…

> Obvious (if politically impossible) fix - banks that go bust become U.S. Gov't. property.

the assets should become government property and administered long enough to sell off the assets to the market.

the bank itself should be dissolved as a legal business entity, with no protection for the executives

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#29

Post by xyst »

danans wrote: post #14
xyst wrote: post #3

Seems plausible. Vacancy rates of commercial property is ~~down~~ up significantly in major cities (SF, ATX, NYC, SEA, ...). What I want to know is: is it possible to find out how many of these commercial loans contain a "non-recourse" clause?

> Vacancy rates of commercial property is down significantly in major cities (SF, ATX, NYC, SEA, ...). You mean occupancy rate right?

yes, occupancy rates :)

Re: Sources Tell Me Some Messed Up Stuff Is Happening in Commercial Real Estate

#30

Post by ryanwaggoner »

This is ridiculous, there aren't going to be trillions in losses from intentional defaults in commercial real estate.

First of all, if it's done intentionally, it's fraud. And if two people have blabbed to random Substack guy, then this would be easy to prove.

Secondly, what exactly is the strategy here? Borrow a ton of money to buy buildings, then default on them and walk away? Where's the profit exactly?

Third, the firms capable of raising this level of capital also care about their reputation and ability to borrow money in the future.

And finally, the buildings won't be worthless when the bank takes them over, they'll just be worth less. To lose trillions here, this would have to happen on a scale of $10 trillion or more? The entire commercial real estate market in the US is only worth like $20 trillion.

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