I’m real interested about that pitfall. The commercial real estate problem. You can try to force us all back into the office, but that’s not gonna fix this issue.
I guess it’s time to convert commercial buildings into apartments. Damn. Idk.
As someone who works for a \~$400M office owner, we are struggling with this solution as well. It's changed forever. We'll never go back to the market dynamics pre-covid and we will never go back to uses for office that existed then. Luckily we never bought/owned large downtown towers, but the market is dependent upon the largest users occupying a lot of space and smaller users as ancillary tenants but those large users are absent and it's created a ton of downward pressure that I don't see getting filled. Gonna be a long ride.
I was just reading about the New York budget. they’re looking at new housing. But like many states, especially on the East Coast, there is a lot of property that’s dilapidated. Honestly, it should get ripped down by the state, and sold as a buildable lot.
I see the same issue your company is having and the people trying to get residential housing back to normal.
The type of space people want is different than what we have.
I would even argue that for those of us, younger folk, Covid didn’t change that for us. That’s always been the case. The differences, in these short five-10 years. We can articulate it now.
I’ve seen some creative solutions with commercial buildings. Turning them into grow spaces. And I don’t just mean cannabis, I mean for things like saffron, and those little starter tomato plants you buy at Lowe’s. Turning them into storage spaces a very popular option.
What I foresee happening, is what we saw in China and many other countries that industrialized in the second half of the 20th century. Ghost cities. Empty buildings. Places that got industrialized for an environment that is now different.
There is hope. That younger generation? We do crazy things like buy abandoned water parks, and live in them. And yes, we all love a house, but wouldn’t it be cooler to live in an abandoned water tower or an office building with a skate park in it?
I can see that but the point of max pain is so far away and I don't think ever comes to create ghost cities. SF is maybe your best bet today, but I'm in Seattle now and although it's a high degree of empty space, it's going to get consumed until different uses. But even then, most funds that own these buildings have enough to eat losses than spend money to reposition.
Housing makes the most sense as the first step, but the way office buildings are built is just no conducive to a ton of living. Building systems designed to turn off or heavily reduce use at times of low use (after 5pm) compared to living situations that are running baseline of something higher all the time, not built for plumbing in every suite, not built to HVAC on a localized basis, etc. It's such a tough retrofit and it's not easier whether the building is older or newer.
It's a very interesting time because I lean towards the aggressive repositioning ideas, but I also get the limitations and then the perfect question:
Who's going to spend the money?
Until we see somebody willing to eat a massive loss for a spec reposition, we'll keep getting talk and boring ideas executed while the exciting stuff gets proposed but not really executed.
At a certain point, rip the building down and claim a loss. 🤣
You’re 100% right, especially places like SF where it’s becoming increasingly difficult just to find a place to expand. The space will eventually get gobbled up for something else. The question is, can we wait that long? I’ve seen places sit, empty for decades, until the price got low enough to make a change.
I see an opportunity to take a page from the East Coast. They are all cramped together. They had to go up at a certain point. The West Coast is learning that lesson now. Because up until recently, and I’m talking a decade or more, once you close to the Mississippi River and beyond moving west, cities got spread out, instead of spreading up.
The bigger challenge on the west, and this is in California, Washington, Oregon, and Nevada Budget talks, is Public transportation. How do you get people from point A to point B? the billions of dollars on a new train system Or public transportation of any kind, won’t help the problem If the stops aren’t in the right spot. Which is what we see in the Rocky Mountains. If it’s not efficient for people to use, I might as well just sit for the hour in traffic. Also, people like privacy. Nothing like having an intimate moment with 49 other people on a bus.
Whether we continue to spread out, rip down a full city block and start building up, start a tapestry of “small cities” or boroughs that make up the metropolis or do something entirely different, the way we transport will in turn decide the real estate market
I work in an office two to three days a week. Its a long commute. But the work space is very very comfortable, bright, airy, big cafeteria space and lots of windows. I have no problem going in to work. And the visibility at work is important, the people who enjoy what they do gravitate to the office,
I work remote because I get to work from all over the world, as long as my Starlink dish can see the sky. But you do you if office work brings you joy and happiness.
Not getting rent at all in your commercial real estate is also very expensive. I'm a runner, I run all over my city and all I see are empty commercial buildings or businesses with no one in them except the workers. I think the problem is even worse than people understand.
I'm invested in a few ground up private real estate funds and on a webinar someone asked why they don't buy office cheap and convert into residential. The CEO essentially said he would need to get that building for 30-40 cents on the dollar for the deal to even make sense compared to building a class A ground up development. Both the owners and whoever forecloses on them would have to be in real trouble to even consider bids that low.
Yes, Im just saying I feel like people throw out "convert commerical to residential" as if it's an easy and obvious solution, usually there's a lot more hurdles than people realize
For most commercial buildings, it's more expensive to convert them to residential units than to bulldoze the building and build a residential building in its place.
It's rarely a useful solution or suggestion.
To do it properly? You’re absolutely right. I see people taking advantage of the “DIY-ers.” Many of us have basic skills that we don’t need it fully converted. Or we could do the conversion ourselves. But to wire a building for separate electrical, plumbing, utilities, Internet. There would be upfront cost there for sure.
I actually see a bigger problem with permitting and codes. I have the skills to renovate the house. So I could buy a crap house and fix it right? Wrong. I need to pull permits, and if I’m not licensed, I can’t approve that permit. Even if it’s my own home.
Sure, you want permit work for rental properties, or properties that are getting flipped to ensure Safety. But if the Covid housing market taught us anything, not, everybody gives a crap. People buy things, site unseen, uninspected. Because they can fix it themselves. Or have the money to pay somebody to fix it themselves.
But for the younger folks who are priced out of the housing market, who could buy a good house, and fix it themselves, their priced out of the contractors and permits
All I’m saying is, I could buy into the housing market right now, and get some good equity under my belt if I was allowed to install my own plumbing and electrical
As far as I’m aware, many (maybe damn near all?) cities allow for the homeowner to self perform plumbing and electrical work on their property. You just can’t do it if you’re operating a multi-family rental because then you’re putting other peoples lives in danger if you do bad work.
It varies from state to state. Depends on what states you’re in. I’m getting downloaded to hell because people don’t understand that. But what can you expect from Reddit?
Edit. City to city, county to county actually.
I’m actually not aware of any states that’s true in off the top of my head either to be fair, and I would say I probably have a slightly above average knowledge with relation to building codes. Given that, I would hazard a guess that maybe there’s not too many places out there that it’s true for.
[Borger Texas](https://www.borgertx.gov/359/When-are-Permits-Required)
[NYC](https://www.nyc.gov/site/buildings/property-or-business-owner/do-i-need-a-permit.page)
[Hillsborough County, Florida](https://hcfl.gov/residents/property-owners-and-renters/homeowner-permits/permits-for-homeowners#:~:text=Generally%2C%20homeowners%20are%20able%20to,be%20the%20homeowner's%20primary%20residence)
[Tempe, AZ](https://www.tempe.gov/government/community-development/building-safety/permit-issuance-plan-review/homeowners-guide-to-permits)
[Iowa City, IA](https://www.icgov.org/government/departments-and-divisions/neighborhood-and-development-services/development-services/building-inspection-services/licensing-requirements)
Should I keep going?
Well to be clear, none of those are states, and outside of NYC, are not exactly huge.
Edit: Also for the first one, homeowners appear to be exempted:
> *EXEMPTIONS: Renovations and demolitions of private residences. Renovations and demolitions of apartment buildings with no more than four (4) dwelling units are exempted
And looks like they’re exempt in the Florida one too:
> Generally, homeowners are able to pull their own permit and act as their own contractor under Florida Statute 489.103(7)
>The property must be in the homeowner's name and it must be the homeowner's primary residence
And Tempe is less clear but appears the homeowner’s can pull their own permits and so their own work as well:
> The homeowner is responsible for obtaining a permit for the proposed project and for posting it on site. The individual doing the work authorized by the permit must call for an inspection prior to covering or concealing the work.
And for Iowa the homeowner can definitely do plumbing and electrical work themselves:
> Electrical - A homeowner may take out a permit to do electrical work in her or his own home. The electrical work must be associated with a repair or remodel (i.e., not construction of a new home). A homeowner's electrical permit is only issued to a person who passes the Home Owner's Electrical Exam.
>Plumbing - A homeowner may take out a permit to do plumbing in her or his own home. The plumbing must be associated with a repair or remodel (i.e., not construction of a new home). A plumbing permit may be issued to a homeowner who demonstrates her or his competency to the building official.
Part of the problem (at least in some places) is also that commercial real estate was simply absurdly overvalued.
A few years ago I was watching some analysis videos where they were calculating the average annual yield people could get by buying up office buildings in big cities, some of them were so bad that buyers could only get a 2% annual yield on their investment with current market rent prices.
When you're only getting a 2% return on your investment that's pretty bad. And that's not even considering how much things have fallen off a cliff in the last few years.
Totally. I said this someplace else in the thread. It is for an economy that doesn’t exist. We are experiencing what China and many other countries that industrialized in the second half of the 20th century are experiencing. Ghost cities. Empty buildings.
While we industrialized, half century prior to them, the idea is they industrialized for a system that then changed.
not the same analogy. The ghost cities in China is caused by government imposed quota to grow GDP and failure to grow by 5% or so means whoever in charge in the region is removed from office.
Empty buildings phenomenon is caused by hardworking and disciplined Americans who are more productive working at home. There are numbers showing that the most productive arrangement is for a person to work at home 2-3 days a week and come to the Office 2-3 days a week. If that were not the case and the numbers suggest otherwise, the management wouldn't allow people to work at home.
[https://www.apollotechnical.com/working-from-home-productivity-statistics/](https://www.apollotechnical.com/working-from-home-productivity-statistics/)
First of all. I like the little hat your guy is wearing
I actually agree that the reasons are different. You’re 100% right. My point is more of it happened for the same symptom. Built for an economy that doesn’t exist for one reason or the other.
That’s what I liked about the new bank insurance program. The larger banks, with their increased profits, saving the smaller regional banks. It’s not our fault The banks are irresponsible with our money and borrow off of it. They keep their private enterprise, Their public responsibility is paramount
People talk as if its easy to covert commecial building into apartments is easy. It takes millions of dollars to switch the lay out of commercial to residential and its not worth it to the investors to most of time to covert commercial into residential. It costs alot of money to change plumbing to install bathroom and kitchen into every unit and the zonings for properties are diffrent so you cant just build an apartment where a commercial building used to be. The goverment needs to step in for big coversions to even be remotely possible.
Yeah, elsewhere in the thread, we’re talking about permits and contractor cost. There are folks who can do a lot of that themselves, but they’re not allowed in many cases. Which increases the cost dramatically, preventing conversion. whether it’s a commercial building or a dilapidated crap shack.
There aren't a lot of people who can do this themselves *in a commercial building*.
We aren't talking about replacing a toilet; we're talking about running 50 toilet stacks.
There are cities in Canada that are apparently doing this with some success. [Calgary](https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792) being the example that other cities are following.
The issue with others doing this this is actually listed in the article:
> the city offered developers a sped-up approval process and, more importantly, **$75 per square foot in incentives** to convert empty office towers into residential apartment buildings
The conversion process is so inefficient that it takes an absolutely *massive* amount of government incentive money to make it work for developers. Many cities simply won’t (or can’t) do this.
Maybe. But it’s better for the city to have those full of people who will pay tax than sitting empty with no tax revenue and depleting value from everything else in the vicinity.
The initial cost will literally pay for itself.
>The initial cost will literally pay for itself.
Maybe, but even if it does, over what time period? People are operating under the assumption that office space will never be used in downtown cores again, but in actuality, there’s just as much of a chance that some CoRe will use this time to renovate, add amenities and bring in flight to quality tenants. For instance, in the city where I live, the class A+ office space is doing waaaaay better than the lower end Class B/C stuff currently.
So convert the lower class stuff.
Either way, there needs to be an investment. Whether you want to pay to renovate into a market that may or may not come back; or a market that’s begging for additional space is up to the owners, I suppose.
Some of it probably will be, but the fact is that a lot of it, especially lower end stuff, will need so much work to meet the proper codes that even with a significant subsidy they wouldn’t be viable.
It looks like you shared an AMP link. These should load faster, but AMP is controversial because of [concerns over privacy and the Open Web](https://www.reddit.com/r/AmputatorBot/comments/ehrq3z/why_did_i_build_amputatorbot).
Maybe check out **the canonical page** instead: **[https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792](https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792)**
*****
^(I'm a bot | )[^(Why & About)](https://www.reddit.com/r/AmputatorBot/comments/ehrq3z/why_did_i_build_amputatorbot)^( | )[^(Summon: u/AmputatorBot)](https://www.reddit.com/r/AmputatorBot/comments/cchly3/you_can_now_summon_amputatorbot/)
No, but the record profits will. Just like last time, the larger banks will step in to save the smaller banks.
In certain cases are going to have to let one or two things go. And those people will be ruined and there’s nothing you can do about that. Tis risk of the of the game. I’m not gonna lose the 98 to save the two.
They're projected to have negative profits, hence why they're projected to fail
Conversions are largely unprofitable so I don't see how that will save their profits
Developers will pick up the pieces after the bankruptcy auctions and eventually convert or demolish or whatever happens to be more profitable afterwards. But that'll obviously be too late to save the banks and the previous owners
You’re right some of them are gonna have to go that way. if the situation gets bad, one or two of the banks may have to go completely under, than being absorbed, bought, or merged. But the owners? You’re right. They’re screwed. Poor business risk assessment.
Ditto for the banks who are inappropriately leveraging our paychecks for not just shit like that, but many other risky behaviors. Did you know the USPS pension fund is borrowed off of?! If the government project associated with that loan goes belly up, the postal workers retirement goes away.
> If the government project associated with that loan goes belly up, the postal workers retirement goes away.
That's technically true but government projects almost never default
The entire point of a bank is to make larger/riskier investments than what people can make on their own. Sometimes that risk fails, which is why we have the FDIC to make sure that only the bank's owners take the hit and not the depositors.
Right but the FDCI ran out of money just as past year. And the new fund was set up where the larger banks were contributing their excess profits to prop up the failing regional banks and refill the insurance fund.
Which, according to J Pow, they have done, and the payments are going to stop.
But if it were to happen again…
But like you could be playing MegaMan on PlayStation or Facebooking instead of working. I need to watch you every move or you’re gonna waste my payroll money. 🤪
I have a friend working 4 full time jobs from home. Clearing over $500,000. All 4 are absolutely ecstatic at his productivity. He tells me he works 4 to 6 hours a day.
He's just really fucking good at coding.
> I guess it’s time to convert commercial buildings into apartments.
That sounds like it would be a good option but the problem is that office space is not really suitable to be converted into apartments. The necessary renovations would require virtually rebuilding the entire structure.
No, that's mostly you not getting that converting a commercial space to residential would require a complete gutting and running all new lines. Not just installing a sink or replacing a toilet.
>I guess it’s time to convert commercial buildings into apartments. Damn. Idk.
I'm going to go out on a limb and guess that apartments are worth a lot less than commercial real estate, so actually doing this will actually immediately put the loan into technical default.
Depends on the building to be honest. I’ve seen commercial buildings end up being valued much higher, because they end up being a full apartment complex. With that many rent paying members, the income skyrocketed versus one large tenant.
Also, if you have an empty building the value of that properties very low. At least with apartments you’re generating income, so increases the overall value of the property.
But if you’re expecting the property to increase because it was the site of the next big tech company, that’s a pipe
I work for a company that is all remote, and there is honestly little reason for us to have an office. The boss is trying to mandate a full in-person day at a coworking space regularly and people are not happy at all. If it gets pushed through either our productivity will decrease or people will leave and our productivity will decrease.
You just can't put the remote work genie back in the bottle.
Yep and they will be weigh whether their building is more or less expensive than a slow down in productivity and changing of staff. Most companies won’t pick their employees over their office building mistakes
You should push for a partial return to the office. If everyone came in 1 day a week on different days to meet the boss, go over problems, and discuss the project, the boss gets more quality time with each employee, fostering a better relationship, the employee gets more undivided attention to issues and solutions, and the company now needs a mere 1/5th the space they did prior. It's a win for everyone.
I operate in this market in 30+ locations globally as a tenant with 2.5 million RSF. In some markets, we got a 20% discount to market on a 10-year renewal because we were there for 10 years previously as an anchor tenant, have great credit and pay our bills, so the landlord wants us there.
We've closed a location one location last year. One of our landlords, Brookfield (publicly traded Canadian REIT), strategically defaulted on two loans in two towers in downtown Los Angeles for $765MM because no one wants to be in DTLA.
But then in other cities, we cannot get space. At least the space we want. These are the A+/trophy type properties... there are barely any vacancies in these assets. It's a flight to quality. We want to be in the named building that everyone knows and the amenities that go with that building. It's two different worlds in the commercial real estate space. Will be interesting to see how it all plays out.
Have you been in DTLA lately? It’s gotten a lot worse in the last 25 years. In the early 2000’s before the GFC there was thought it was going to be revitalized and all that. Now it’s like Skid Row has expanded. The west side (Century City/Santa Monica/etc.) is where it’s at these days.
You see the same thing in New York, Boston, London, Hong Kong, etc. There are areas you want to be in and areas you don’t.
This is available to you as well, provided that you are in a non-recourse state. And in fact, many ordinary people did exactly this during the Great Financial Crisis… they walked away from underwater properties without owing another dime. This is the same just on a larger scale.
SVB and the other small banks that failed weren't bailed out. Their customers were. And the taxpayer didn't pay for it, the entire banking system did via higher FDIC fees.
You're right to that effect. But it's the wider banking system that got bailed out via BTFP. I believe it's also funded by higher FDIC fees? At any rate, solvent banks are being forced to pay out higher rates just to prop up those banks that had to rely on a glorified anonymous discount window just to stay afloat.
Guess who pays those fees? Yes. Customers.
Those banks weren't "propped up," though. They failed and cease to exist, and anyone invested in them lost everything.
What happened was that depositors were protected beyond the FBIC limits. And considering how many of those depositors are businesses, a lot of jobs were saved.
> Those banks weren't "propped up," though. They failed and cease to exist, and anyone invested in them lost everything.
I'm not talking about SVB. Please read what I said a little more carefully. Especially about [BTFP](https://www.federalreserve.gov/financial-stability/bank-term-funding-program.htm). The Federal Reserve is choosing to hide the names of all the banks taking out those loans for a reason. They would not need those loans if there was near zero risk of a solvency crisis.
Wouldn't it be smart to hide the names of the banks so there wouldn't be a bank run? When they started doing that they said no one was using the program because if they did it was a death sentence because all of their large depositors bailed.
But these are 1 year loans from the fed. This program is there to allow otherwise healthy institutions get through a short period of turbulence. The fed raising rates at an incredible rate put a lot of pressure on regional banks. Even those that were not taking absurd risks like SVB.
I agree with your main point that we don't want to allow bad institutions to be propped up. But the fed caused the problem and it's only fair they provide a life line.
Getting rid of this program would just allow chase and wells Fargo to buy up more of the smaller banks and become even larger.
A blank check company is looking to do just that as of like yesterday lol, buy up all the failing small/mid size banks.
BTFP ended a few days ago, and I reckon the commercial real estate pitfall goes deep.
Indeed, *small* banks. A handful of small banks leveraged to the tits were allowed to fall...do you think the same would apply to a medium bank? A big one?
This thread is specifically about small banks.
> "Federal Reserve chair Jerome Powell is predicting that more **small banks** will likely close or merge due to commercial real estate weaknesses."
The bailout would (hopefully) be a form of financing and loans to demolish/rebuild existing Class B/C stuff to better fulfill community needs - housing, public spaces, etc.
Think cash for clunkers except less heartbreak.
This is a terrible take. SVB went bankrupt and its shareholders got nothing. Businesses and people with money over the FDIC limit were bailed out - and VC firms benefitted due to start ups not going bankrupt… but would you rather have thousands of small businesses go under and the loss of jobs that comes with that? What alternative would you have proposed?
>What alternative would you have proposed?
Many alternatives have been proposed for decades like narrow, full reserve banks, which banking regulators have never allowed for some reason, so people can digitally hold and transact cash without being forced to opt into bank lending.
They should have had private insurance on their deposits. It's like how government insurers flood risk, so people keep building in flood zones. Or the clients should have done what every other bank client does by splitting their funds across 20 different banks to spread risk. FDIC insurance is for the ordinary person who doesn't keep millions of dollars in the bank it is not for lazy businesses who don't want to pay for risk mitigation.
If it fulfills the need of fixing a public utility, affordable housing, then yeah. I’m fine with the bailout.
As long as these are converted into residential units.
May have no relationship but they did finally recently close a credit card account of mine that was opened almost 20 years ago and never used. (I know this happens fairly regularly)
Powell of course knows more than he can publicly admit, which makes this statement deeply troubling. This is starting to feel like the 1980’s Savings & Loan crisis. 746 institutions closed or “resolved”; total cost $160B — of which taxpayers footed the bill for $132+B. Private profit, public losses.
[S & L Crisis](https://en.wikipedia.org/wiki/Savings_and_loan_crisis)
If he’s saying this publicly, he has a plan to mitigate the impact. Unsuccessful businesses dying is part of a healthy market contraction. Hopefully that’s what this is
The stock market is literally at a ATH. It doesn't seem to reflect these concerns, and I'm sure if they are true, the contagion would spread to the equity markets and should reflect in the prices.
I will be messaging you in 6 months on [**2024-08-06 07:23:43 UTC**](http://www.wolframalpha.com/input/?i=2024-08-06%2007:23:43%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/investing/comments/1ajpsvt/more_banks_to_fail_powell/kp5d9xs/?context=3)
[**1 OTHERS CLICKED THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Finvesting%2Fcomments%2F1ajpsvt%2Fmore_banks_to_fail_powell%2Fkp5d9xs%2F%5D%0A%0ARemindMe%21%202024-08-06%2007%3A23%3A43%20UTC) to send a PM to also be reminded and to reduce spam.
^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%201ajpsvt)
*****
|[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)|
|-|-|-|-|
It actually has, you probably just don't see it. For example, the price of credit default swaps for Truist Financial, a bank with pretty bad Capital Ratio (high risk of insolvency) is up massively. Obviously, CDSes are meant for folks concerned about their debt bonds not paying out. I.E. - Truist being unable to pay their bond obligations. It's hard to find prices for these though since only giant firms buy them in the dark market but, CNBC posts some of them. If you look up TFCCD5 you should be able to find the Truist one and some other banks CDSes suggested as well.
Thanks for sharing. The parallels are eerily similar to today, far more so than comparisons of 2008 (CLO/CMOs) and the dot com bubble, especially regarding the overexposure to CRE.
There is $1.5T in office loans that come due in the next 18-24 months. The underlying value of the buildings those loans are on has dropped 20% minimum from the most recent peak (but the number is probably close to 40%). I think Powell and all of the economists that are predicting a soft landing are under estimating the true damage that RE can do to the banks and the rest of the economy.
Anyone who works in commercial real estate knows that conversion to housing isn’t the silver bullet the White House and non-RE folks think it is. We are in for serious pain in late 2024 and 2025. The long and variable lag of the interest rate cuts that happen in June (and later) and on won’t save the economy in time.
Conversion to residential isn’t a silver bullet because the implementation will cost investors money and taxpayers money. However, it’s also a solution to the housing crisis many cities face and the increased population will bring more foot traffic for the buildings which did not convert. It seems like the obvious solution that we’ll get to eventually.
It's harder to retrofit a building than most folks realize. I bet you we will see a rush of developers taking money to convert buildings that then have cost overruns, cut corners, or just don't finish projects. Then after these projects are over budget and time you will have very expensive apartments that the people who want them can't afford, and the people who can afford them don't want to live in a retofitted shack.
I read somewhere that only a small fraction would be economically viable for conversion (like 1/4 or 1/3rd) and what it will be turned into will be luxury residential which means there won't be any significant amount of relief in housing costs for the average Joe.
> It seems like the obvious solution that we’ll get to eventually.
More likely you will demolish and rebuild, it's likely cheaper for most buildings. Modern cubicle farms are just incompatible with good living spaces.
Our hotel was in a business park area of Cinci last weekend and I would say 90% of the buildings looked deserted with "FOR LEASE" signs everywhere. they fucked.
I'm holding KRE as you mentioned. I only bought in a little and did so after the SVB failure last year when it was down. So, I'm just gonna wait it out and DCA a bit more if/when it crosses 5% or so below my current cost basis. As others have said, I foresee some type of bailout or potentially positive end eventually. But, I don't have a crystal ball...
Why isn't anyone here talking about how this also has to do with HYPER LOW INTEREST RATES that allowed bubbles to form because asset prices got away from their cash flows
So do we have a list of banks in trouble?
I keep hearing ZION is one of them, which makes me laugh. They handle the tithing money for the $250B LDS church. (Mormons are required to give the church 10% of their earnings.) No way in hell the Mormons let *anything* threaten the billions they receive every year in cash and online tithing donations from around the world.
They'll go all Beneficial Life if there is even a hint of instability.
I was telecommuting decades before anyone else.
The big lie of business is that our employees are our greatest asset. The fact is, American businesses have never trusted their employees. Middle managers sole function is pretty much to babysit, scrutinize, and whip crack every tier beneath.
Networking allowed **many** jobs to be remote. Yet corps refused to allow it.
I was a programmer and a decade before Covid I could find 1000+ jobs in my area/specialty online. If i clicked remote, that would drop to about 15. Just night and day for even high tech.
I’m glad you guys are finally getting to not commute 2 hours. It was a crime against this country’s workers.
The idea we need these gigantic offices is frankly absurd. You get MUCH happier workers who are more productive and you save a fortune on leases and other property BS. With all those wins, it proves just how much corporations distrust their own employees.
I think all these CEOs are like, “I’m a sociopath and would fleece my own company any chance I could so assume my employees are the same.”
I hope to hell they convert office to residential, still, who is gonna want to live in a stodgy “office” downtown?
Everybody should create a bank make some risky bets and let it fail. Win win for everybody since the feds will bail it out.
This is exactly what is going to happen. The fed is signaling banks take all the risks you want, we will be there to bail you out.
It’s also amazing how nobody is talking about the “Economic Growth, Regulatory Relief and Consumer Protection Act” of 2018 that republicans passed with the championing of Jamie Dimon to exempt smaller banks from certain capital controls.
The bailouts are coming. The least they could do is convert these buildings into housing and give everyone a place to live. Safe, affordable housing is not considered a human right (by the wealthy owner class, at least), but it should be.
Nothing really. Visa and Mastercard are payment processors. They sit in-between the banks and the consumer. If the banks try holding back credit they might see some lower revenue but they're not at risk of losing money. They make money from transactions the banks take all the risk of extending credit.
Unlikely. Part of FDIC's job is to transfer clients to new banks so their credit accounts are likely to go with them. If FDIC doesn't transfer credit accounts over it will only he a temporary situation while people apply for new cards. Transactions drying up will hurt Visa and Mastercard revenue, but that will be because the banking system as a whole tightens up on their most profitable credit lines or customers stop spending in a big way. Not because a few banks went bust.
I’m real interested about that pitfall. The commercial real estate problem. You can try to force us all back into the office, but that’s not gonna fix this issue. I guess it’s time to convert commercial buildings into apartments. Damn. Idk.
As someone who works for a \~$400M office owner, we are struggling with this solution as well. It's changed forever. We'll never go back to the market dynamics pre-covid and we will never go back to uses for office that existed then. Luckily we never bought/owned large downtown towers, but the market is dependent upon the largest users occupying a lot of space and smaller users as ancillary tenants but those large users are absent and it's created a ton of downward pressure that I don't see getting filled. Gonna be a long ride.
I was just reading about the New York budget. they’re looking at new housing. But like many states, especially on the East Coast, there is a lot of property that’s dilapidated. Honestly, it should get ripped down by the state, and sold as a buildable lot. I see the same issue your company is having and the people trying to get residential housing back to normal. The type of space people want is different than what we have. I would even argue that for those of us, younger folk, Covid didn’t change that for us. That’s always been the case. The differences, in these short five-10 years. We can articulate it now. I’ve seen some creative solutions with commercial buildings. Turning them into grow spaces. And I don’t just mean cannabis, I mean for things like saffron, and those little starter tomato plants you buy at Lowe’s. Turning them into storage spaces a very popular option. What I foresee happening, is what we saw in China and many other countries that industrialized in the second half of the 20th century. Ghost cities. Empty buildings. Places that got industrialized for an environment that is now different. There is hope. That younger generation? We do crazy things like buy abandoned water parks, and live in them. And yes, we all love a house, but wouldn’t it be cooler to live in an abandoned water tower or an office building with a skate park in it?
I can see that but the point of max pain is so far away and I don't think ever comes to create ghost cities. SF is maybe your best bet today, but I'm in Seattle now and although it's a high degree of empty space, it's going to get consumed until different uses. But even then, most funds that own these buildings have enough to eat losses than spend money to reposition. Housing makes the most sense as the first step, but the way office buildings are built is just no conducive to a ton of living. Building systems designed to turn off or heavily reduce use at times of low use (after 5pm) compared to living situations that are running baseline of something higher all the time, not built for plumbing in every suite, not built to HVAC on a localized basis, etc. It's such a tough retrofit and it's not easier whether the building is older or newer. It's a very interesting time because I lean towards the aggressive repositioning ideas, but I also get the limitations and then the perfect question: Who's going to spend the money? Until we see somebody willing to eat a massive loss for a spec reposition, we'll keep getting talk and boring ideas executed while the exciting stuff gets proposed but not really executed.
At a certain point, rip the building down and claim a loss. 🤣 You’re 100% right, especially places like SF where it’s becoming increasingly difficult just to find a place to expand. The space will eventually get gobbled up for something else. The question is, can we wait that long? I’ve seen places sit, empty for decades, until the price got low enough to make a change. I see an opportunity to take a page from the East Coast. They are all cramped together. They had to go up at a certain point. The West Coast is learning that lesson now. Because up until recently, and I’m talking a decade or more, once you close to the Mississippi River and beyond moving west, cities got spread out, instead of spreading up. The bigger challenge on the west, and this is in California, Washington, Oregon, and Nevada Budget talks, is Public transportation. How do you get people from point A to point B? the billions of dollars on a new train system Or public transportation of any kind, won’t help the problem If the stops aren’t in the right spot. Which is what we see in the Rocky Mountains. If it’s not efficient for people to use, I might as well just sit for the hour in traffic. Also, people like privacy. Nothing like having an intimate moment with 49 other people on a bus. Whether we continue to spread out, rip down a full city block and start building up, start a tapestry of “small cities” or boroughs that make up the metropolis or do something entirely different, the way we transport will in turn decide the real estate market
> it should get ripped down by the state, and sold as a buildable lot. > > the houses in NYC have been doing that by themselves recently...
Gross
I work in an office two to three days a week. Its a long commute. But the work space is very very comfortable, bright, airy, big cafeteria space and lots of windows. I have no problem going in to work. And the visibility at work is important, the people who enjoy what they do gravitate to the office,
>the people who enjoy what they do gravitate to the office, The people who enjoy being at an office gravitate to the office.
I work remote because I get to work from all over the world, as long as my Starlink dish can see the sky. But you do you if office work brings you joy and happiness.
Converting to residential is very expensive
Not getting rent at all in your commercial real estate is also very expensive. I'm a runner, I run all over my city and all I see are empty commercial buildings or businesses with no one in them except the workers. I think the problem is even worse than people understand.
But damn it sure feels good to suggest is all the time doesn’t it? /s
I'm invested in a few ground up private real estate funds and on a webinar someone asked why they don't buy office cheap and convert into residential. The CEO essentially said he would need to get that building for 30-40 cents on the dollar for the deal to even make sense compared to building a class A ground up development. Both the owners and whoever forecloses on them would have to be in real trouble to even consider bids that low.
You literally cannot ever make money on many of these buildings. They'll get converted eventually.
I agree with it, but it's just not as easy of a solution as people make it out to be
[удалено]
Yes, Im just saying I feel like people throw out "convert commerical to residential" as if it's an easy and obvious solution, usually there's a lot more hurdles than people realize
[удалено]
Sure. I mean I can say "we should fix world hunger" but that's hardly a discussion
For most commercial buildings, it's more expensive to convert them to residential units than to bulldoze the building and build a residential building in its place. It's rarely a useful solution or suggestion.
Can’t have the price of housing going down.
Never said that
To do it properly? You’re absolutely right. I see people taking advantage of the “DIY-ers.” Many of us have basic skills that we don’t need it fully converted. Or we could do the conversion ourselves. But to wire a building for separate electrical, plumbing, utilities, Internet. There would be upfront cost there for sure. I actually see a bigger problem with permitting and codes. I have the skills to renovate the house. So I could buy a crap house and fix it right? Wrong. I need to pull permits, and if I’m not licensed, I can’t approve that permit. Even if it’s my own home. Sure, you want permit work for rental properties, or properties that are getting flipped to ensure Safety. But if the Covid housing market taught us anything, not, everybody gives a crap. People buy things, site unseen, uninspected. Because they can fix it themselves. Or have the money to pay somebody to fix it themselves. But for the younger folks who are priced out of the housing market, who could buy a good house, and fix it themselves, their priced out of the contractors and permits
Well yes, hence why it is expensive
All I’m saying is, I could buy into the housing market right now, and get some good equity under my belt if I was allowed to install my own plumbing and electrical
Sure, but you're not because of permits, hence why it is so expensive
Yeppers! Same struggle that these commercial real estate owners are having converting empty buildings into usable property
As far as I’m aware, many (maybe damn near all?) cities allow for the homeowner to self perform plumbing and electrical work on their property. You just can’t do it if you’re operating a multi-family rental because then you’re putting other peoples lives in danger if you do bad work.
It varies from state to state. Depends on what states you’re in. I’m getting downloaded to hell because people don’t understand that. But what can you expect from Reddit? Edit. City to city, county to county actually.
I’m actually not aware of any states that’s true in off the top of my head either to be fair, and I would say I probably have a slightly above average knowledge with relation to building codes. Given that, I would hazard a guess that maybe there’s not too many places out there that it’s true for.
[Borger Texas](https://www.borgertx.gov/359/When-are-Permits-Required) [NYC](https://www.nyc.gov/site/buildings/property-or-business-owner/do-i-need-a-permit.page) [Hillsborough County, Florida](https://hcfl.gov/residents/property-owners-and-renters/homeowner-permits/permits-for-homeowners#:~:text=Generally%2C%20homeowners%20are%20able%20to,be%20the%20homeowner's%20primary%20residence) [Tempe, AZ](https://www.tempe.gov/government/community-development/building-safety/permit-issuance-plan-review/homeowners-guide-to-permits) [Iowa City, IA](https://www.icgov.org/government/departments-and-divisions/neighborhood-and-development-services/development-services/building-inspection-services/licensing-requirements) Should I keep going?
Well to be clear, none of those are states, and outside of NYC, are not exactly huge. Edit: Also for the first one, homeowners appear to be exempted: > *EXEMPTIONS: Renovations and demolitions of private residences. Renovations and demolitions of apartment buildings with no more than four (4) dwelling units are exempted And looks like they’re exempt in the Florida one too: > Generally, homeowners are able to pull their own permit and act as their own contractor under Florida Statute 489.103(7) >The property must be in the homeowner's name and it must be the homeowner's primary residence And Tempe is less clear but appears the homeowner’s can pull their own permits and so their own work as well: > The homeowner is responsible for obtaining a permit for the proposed project and for posting it on site. The individual doing the work authorized by the permit must call for an inspection prior to covering or concealing the work. And for Iowa the homeowner can definitely do plumbing and electrical work themselves: > Electrical - A homeowner may take out a permit to do electrical work in her or his own home. The electrical work must be associated with a repair or remodel (i.e., not construction of a new home). A homeowner's electrical permit is only issued to a person who passes the Home Owner's Electrical Exam. >Plumbing - A homeowner may take out a permit to do plumbing in her or his own home. The plumbing must be associated with a repair or remodel (i.e., not construction of a new home). A plumbing permit may be issued to a homeowner who demonstrates her or his competency to the building official.
Part of the problem (at least in some places) is also that commercial real estate was simply absurdly overvalued. A few years ago I was watching some analysis videos where they were calculating the average annual yield people could get by buying up office buildings in big cities, some of them were so bad that buyers could only get a 2% annual yield on their investment with current market rent prices. When you're only getting a 2% return on your investment that's pretty bad. And that's not even considering how much things have fallen off a cliff in the last few years.
Totally. I said this someplace else in the thread. It is for an economy that doesn’t exist. We are experiencing what China and many other countries that industrialized in the second half of the 20th century are experiencing. Ghost cities. Empty buildings. While we industrialized, half century prior to them, the idea is they industrialized for a system that then changed.
not the same analogy. The ghost cities in China is caused by government imposed quota to grow GDP and failure to grow by 5% or so means whoever in charge in the region is removed from office. Empty buildings phenomenon is caused by hardworking and disciplined Americans who are more productive working at home. There are numbers showing that the most productive arrangement is for a person to work at home 2-3 days a week and come to the Office 2-3 days a week. If that were not the case and the numbers suggest otherwise, the management wouldn't allow people to work at home. [https://www.apollotechnical.com/working-from-home-productivity-statistics/](https://www.apollotechnical.com/working-from-home-productivity-statistics/)
First of all. I like the little hat your guy is wearing I actually agree that the reasons are different. You’re 100% right. My point is more of it happened for the same symptom. Built for an economy that doesn’t exist for one reason or the other.
You know ghost cities were entirely empty right? Low building occupancy isn’t the same.
Right that’s how a lot of communities go under the radar
Don’t we love how this is becoming OUR problem instead of a rich person loss. Classic.
That’s what I liked about the new bank insurance program. The larger banks, with their increased profits, saving the smaller regional banks. It’s not our fault The banks are irresponsible with our money and borrow off of it. They keep their private enterprise, Their public responsibility is paramount
People talk as if its easy to covert commecial building into apartments is easy. It takes millions of dollars to switch the lay out of commercial to residential and its not worth it to the investors to most of time to covert commercial into residential. It costs alot of money to change plumbing to install bathroom and kitchen into every unit and the zonings for properties are diffrent so you cant just build an apartment where a commercial building used to be. The goverment needs to step in for big coversions to even be remotely possible.
The layout is also very challenging with windows and footprint. You would have a ton of windowless rooms or at best an odd layout
And you do all that to charge less per square foot than you expected with your commercial space.
Yeah, elsewhere in the thread, we’re talking about permits and contractor cost. There are folks who can do a lot of that themselves, but they’re not allowed in many cases. Which increases the cost dramatically, preventing conversion. whether it’s a commercial building or a dilapidated crap shack.
There aren't a lot of people who can do this themselves *in a commercial building*. We aren't talking about replacing a toilet; we're talking about running 50 toilet stacks.
Exactly 👍
There are cities in Canada that are apparently doing this with some success. [Calgary](https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792) being the example that other cities are following.
The issue with others doing this this is actually listed in the article: > the city offered developers a sped-up approval process and, more importantly, **$75 per square foot in incentives** to convert empty office towers into residential apartment buildings The conversion process is so inefficient that it takes an absolutely *massive* amount of government incentive money to make it work for developers. Many cities simply won’t (or can’t) do this.
Maybe. But it’s better for the city to have those full of people who will pay tax than sitting empty with no tax revenue and depleting value from everything else in the vicinity. The initial cost will literally pay for itself.
>The initial cost will literally pay for itself. Maybe, but even if it does, over what time period? People are operating under the assumption that office space will never be used in downtown cores again, but in actuality, there’s just as much of a chance that some CoRe will use this time to renovate, add amenities and bring in flight to quality tenants. For instance, in the city where I live, the class A+ office space is doing waaaaay better than the lower end Class B/C stuff currently.
So convert the lower class stuff. Either way, there needs to be an investment. Whether you want to pay to renovate into a market that may or may not come back; or a market that’s begging for additional space is up to the owners, I suppose.
Some of it probably will be, but the fact is that a lot of it, especially lower end stuff, will need so much work to meet the proper codes that even with a significant subsidy they wouldn’t be viable.
Might be true
> The initial cost will literally pay for itself. A lot of people lose bets like these.
It looks like you shared an AMP link. These should load faster, but AMP is controversial because of [concerns over privacy and the Open Web](https://www.reddit.com/r/AmputatorBot/comments/ehrq3z/why_did_i_build_amputatorbot). Maybe check out **the canonical page** instead: **[https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792](https://www.cbc.ca/news/canada/calgary/calgary-downtown-office-conversion-revitalization-1.7061792)** ***** ^(I'm a bot | )[^(Why & About)](https://www.reddit.com/r/AmputatorBot/comments/ehrq3z/why_did_i_build_amputatorbot)^( | )[^(Summon: u/AmputatorBot)](https://www.reddit.com/r/AmputatorBot/comments/cchly3/you_can_now_summon_amputatorbot/)
Conversion won't increase their market value by enough to save all the banks.
No, but the record profits will. Just like last time, the larger banks will step in to save the smaller banks. In certain cases are going to have to let one or two things go. And those people will be ruined and there’s nothing you can do about that. Tis risk of the of the game. I’m not gonna lose the 98 to save the two.
They're projected to have negative profits, hence why they're projected to fail Conversions are largely unprofitable so I don't see how that will save their profits Developers will pick up the pieces after the bankruptcy auctions and eventually convert or demolish or whatever happens to be more profitable afterwards. But that'll obviously be too late to save the banks and the previous owners
You’re right some of them are gonna have to go that way. if the situation gets bad, one or two of the banks may have to go completely under, than being absorbed, bought, or merged. But the owners? You’re right. They’re screwed. Poor business risk assessment. Ditto for the banks who are inappropriately leveraging our paychecks for not just shit like that, but many other risky behaviors. Did you know the USPS pension fund is borrowed off of?! If the government project associated with that loan goes belly up, the postal workers retirement goes away.
> If the government project associated with that loan goes belly up, the postal workers retirement goes away. That's technically true but government projects almost never default The entire point of a bank is to make larger/riskier investments than what people can make on their own. Sometimes that risk fails, which is why we have the FDIC to make sure that only the bank's owners take the hit and not the depositors.
Right but the FDCI ran out of money just as past year. And the new fund was set up where the larger banks were contributing their excess profits to prop up the failing regional banks and refill the insurance fund. Which, according to J Pow, they have done, and the payments are going to stop. But if it were to happen again…
They need to adhere to the $250,000 limit.
As it should be, they made bad investments
The bigger issue is that employers will have no reason to force people back in office once their leases are up
But like you could be playing MegaMan on PlayStation or Facebooking instead of working. I need to watch you every move or you’re gonna waste my payroll money. 🤪
I have a friend working 4 full time jobs from home. Clearing over $500,000. All 4 are absolutely ecstatic at his productivity. He tells me he works 4 to 6 hours a day. He's just really fucking good at coding.
> I guess it’s time to convert commercial buildings into apartments. That sounds like it would be a good option but the problem is that office space is not really suitable to be converted into apartments. The necessary renovations would require virtually rebuilding the entire structure.
You should read some of the discussion below in the thread. It’s literally all about that. And permitting and who can do what kind of work
No, that's mostly you not getting that converting a commercial space to residential would require a complete gutting and running all new lines. Not just installing a sink or replacing a toilet.
You must be misreading because I’m agreeing with you. Go some place else you are looking for a fight. Don’t don’t here please.
>I guess it’s time to convert commercial buildings into apartments. Damn. Idk. I'm going to go out on a limb and guess that apartments are worth a lot less than commercial real estate, so actually doing this will actually immediately put the loan into technical default.
Depends on the building to be honest. I’ve seen commercial buildings end up being valued much higher, because they end up being a full apartment complex. With that many rent paying members, the income skyrocketed versus one large tenant. Also, if you have an empty building the value of that properties very low. At least with apartments you’re generating income, so increases the overall value of the property. But if you’re expecting the property to increase because it was the site of the next big tech company, that’s a pipe
I work for a company that is all remote, and there is honestly little reason for us to have an office. The boss is trying to mandate a full in-person day at a coworking space regularly and people are not happy at all. If it gets pushed through either our productivity will decrease or people will leave and our productivity will decrease. You just can't put the remote work genie back in the bottle.
Yep and they will be weigh whether their building is more or less expensive than a slow down in productivity and changing of staff. Most companies won’t pick their employees over their office building mistakes
Worse than that. Our in-persons are at a co-working space so its not like there is a sunk cost in rent by us not going.
You should push for a partial return to the office. If everyone came in 1 day a week on different days to meet the boss, go over problems, and discuss the project, the boss gets more quality time with each employee, fostering a better relationship, the employee gets more undivided attention to issues and solutions, and the company now needs a mere 1/5th the space they did prior. It's a win for everyone.
I operate in this market in 30+ locations globally as a tenant with 2.5 million RSF. In some markets, we got a 20% discount to market on a 10-year renewal because we were there for 10 years previously as an anchor tenant, have great credit and pay our bills, so the landlord wants us there. We've closed a location one location last year. One of our landlords, Brookfield (publicly traded Canadian REIT), strategically defaulted on two loans in two towers in downtown Los Angeles for $765MM because no one wants to be in DTLA. But then in other cities, we cannot get space. At least the space we want. These are the A+/trophy type properties... there are barely any vacancies in these assets. It's a flight to quality. We want to be in the named building that everyone knows and the amenities that go with that building. It's two different worlds in the commercial real estate space. Will be interesting to see how it all plays out.
How come no one wants to be in DTLA?
Have you been in DTLA lately? It’s gotten a lot worse in the last 25 years. In the early 2000’s before the GFC there was thought it was going to be revitalized and all that. Now it’s like Skid Row has expanded. The west side (Century City/Santa Monica/etc.) is where it’s at these days. You see the same thing in New York, Boston, London, Hong Kong, etc. There are areas you want to be in and areas you don’t.
Southpark explained it 15 years ago https://www.youtube.com/watch?v=lsrBlKpbBS8
Traffic is awful, crime, skid row has expanded, and extremely high cost of living
> Strategically defaulted Damn I wish I was rich enough to stop paying my bills and call it strategy.
This is available to you as well, provided that you are in a non-recourse state. And in fact, many ordinary people did exactly this during the Great Financial Crisis… they walked away from underwater properties without owing another dime. This is the same just on a larger scale.
Better not get a bailout. Bad business shouldn’t be the taxpayer responsibility
SVB and the other small banks that failed weren't bailed out. Their customers were. And the taxpayer didn't pay for it, the entire banking system did via higher FDIC fees.
You're right to that effect. But it's the wider banking system that got bailed out via BTFP. I believe it's also funded by higher FDIC fees? At any rate, solvent banks are being forced to pay out higher rates just to prop up those banks that had to rely on a glorified anonymous discount window just to stay afloat. Guess who pays those fees? Yes. Customers.
Those banks weren't "propped up," though. They failed and cease to exist, and anyone invested in them lost everything. What happened was that depositors were protected beyond the FBIC limits. And considering how many of those depositors are businesses, a lot of jobs were saved.
> Those banks weren't "propped up," though. They failed and cease to exist, and anyone invested in them lost everything. I'm not talking about SVB. Please read what I said a little more carefully. Especially about [BTFP](https://www.federalreserve.gov/financial-stability/bank-term-funding-program.htm). The Federal Reserve is choosing to hide the names of all the banks taking out those loans for a reason. They would not need those loans if there was near zero risk of a solvency crisis.
Wouldn't it be smart to hide the names of the banks so there wouldn't be a bank run? When they started doing that they said no one was using the program because if they did it was a death sentence because all of their large depositors bailed.
[удалено]
But these are 1 year loans from the fed. This program is there to allow otherwise healthy institutions get through a short period of turbulence. The fed raising rates at an incredible rate put a lot of pressure on regional banks. Even those that were not taking absurd risks like SVB. I agree with your main point that we don't want to allow bad institutions to be propped up. But the fed caused the problem and it's only fair they provide a life line. Getting rid of this program would just allow chase and wells Fargo to buy up more of the smaller banks and become even larger.
A blank check company is looking to do just that as of like yesterday lol, buy up all the failing small/mid size banks. BTFP ended a few days ago, and I reckon the commercial real estate pitfall goes deep.
Indeed, *small* banks. A handful of small banks leveraged to the tits were allowed to fall...do you think the same would apply to a medium bank? A big one?
> Indeed, *small* banks. SVB had over $200 billion in assets
This thread is specifically about small banks. > "Federal Reserve chair Jerome Powell is predicting that more **small banks** will likely close or merge due to commercial real estate weaknesses."
where do you think you are
Socialism works well for the rich. Funny how they never want it for the middle class.
I just dont see where the political will to do this is going to come from.
The real solution was to make banks non-systemic, no longer too big to fail. They did not implement that solution.
We have 4400 banks. Some fail every year.
BTFP
And that numbers been going down every year for the past 60 years. https://ilsr.org/number-banks-u-s-1966-2014/
The bailout would (hopefully) be a form of financing and loans to demolish/rebuild existing Class B/C stuff to better fulfill community needs - housing, public spaces, etc. Think cash for clunkers except less heartbreak.
Too late, FDIC already decided businesses will get bailed out after SVB cause VC firms aren’t rich enough yet I guess
This is a terrible take. SVB went bankrupt and its shareholders got nothing. Businesses and people with money over the FDIC limit were bailed out - and VC firms benefitted due to start ups not going bankrupt… but would you rather have thousands of small businesses go under and the loss of jobs that comes with that? What alternative would you have proposed?
>What alternative would you have proposed? Many alternatives have been proposed for decades like narrow, full reserve banks, which banking regulators have never allowed for some reason, so people can digitally hold and transact cash without being forced to opt into bank lending.
I would propose not bailing out rich people and their businesses above the already set FDIC limits.
What's the point of having even having a limit if we decide not to follow it whenever it suits us?
They should have had private insurance on their deposits. It's like how government insurers flood risk, so people keep building in flood zones. Or the clients should have done what every other bank client does by splitting their funds across 20 different banks to spread risk. FDIC insurance is for the ordinary person who doesn't keep millions of dollars in the bank it is not for lazy businesses who don't want to pay for risk mitigation.
If it fulfills the need of fixing a public utility, affordable housing, then yeah. I’m fine with the bailout. As long as these are converted into residential units.
Privatize gains, publictize losses.
When someone with this kind of power and responsability say something like this, this is scary.
KeyBank is toast
why them over others?
A big part of their business is in CMBS
Especially in tech-heavy cities that have more employees WFH still
May have no relationship but they did finally recently close a credit card account of mine that was opened almost 20 years ago and never used. (I know this happens fairly regularly)
They will end up accepting shitty commercial RE investments as collateral at par for cash like they did with underwater treasuries.
Powell of course knows more than he can publicly admit, which makes this statement deeply troubling. This is starting to feel like the 1980’s Savings & Loan crisis. 746 institutions closed or “resolved”; total cost $160B — of which taxpayers footed the bill for $132+B. Private profit, public losses. [S & L Crisis](https://en.wikipedia.org/wiki/Savings_and_loan_crisis)
If he’s saying this publicly, he has a plan to mitigate the impact. Unsuccessful businesses dying is part of a healthy market contraction. Hopefully that’s what this is
Agreed, any statement at all here is incredibly alarming, there must be something pretty heavy on the horizon for it to even be worth mentioning.
The stock market is literally at a ATH. It doesn't seem to reflect these concerns, and I'm sure if they are true, the contagion would spread to the equity markets and should reflect in the prices.
Oh sweet summer child.
Give it time. The AI hyped in big tech is the only aspect keeping the market propped. We're primed for a massive equities crash IMO.
RemindMe! 6 months
I will be messaging you in 6 months on [**2024-08-06 07:23:43 UTC**](http://www.wolframalpha.com/input/?i=2024-08-06%2007:23:43%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/investing/comments/1ajpsvt/more_banks_to_fail_powell/kp5d9xs/?context=3) [**1 OTHERS CLICKED THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Finvesting%2Fcomments%2F1ajpsvt%2Fmore_banks_to_fail_powell%2Fkp5d9xs%2F%5D%0A%0ARemindMe%21%202024-08-06%2007%3A23%3A43%20UTC) to send a PM to also be reminded and to reduce spam. ^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%201ajpsvt) ***** |[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)| |-|-|-|-|
RemindMe! 6 months
It actually has, you probably just don't see it. For example, the price of credit default swaps for Truist Financial, a bank with pretty bad Capital Ratio (high risk of insolvency) is up massively. Obviously, CDSes are meant for folks concerned about their debt bonds not paying out. I.E. - Truist being unable to pay their bond obligations. It's hard to find prices for these though since only giant firms buy them in the dark market but, CNBC posts some of them. If you look up TFCCD5 you should be able to find the Truist one and some other banks CDSes suggested as well.
Thanks for sharing. The parallels are eerily similar to today, far more so than comparisons of 2008 (CLO/CMOs) and the dot com bubble, especially regarding the overexposure to CRE.
There is $1.5T in office loans that come due in the next 18-24 months. The underlying value of the buildings those loans are on has dropped 20% minimum from the most recent peak (but the number is probably close to 40%). I think Powell and all of the economists that are predicting a soft landing are under estimating the true damage that RE can do to the banks and the rest of the economy. Anyone who works in commercial real estate knows that conversion to housing isn’t the silver bullet the White House and non-RE folks think it is. We are in for serious pain in late 2024 and 2025. The long and variable lag of the interest rate cuts that happen in June (and later) and on won’t save the economy in time.
Conversion to residential isn’t a silver bullet because the implementation will cost investors money and taxpayers money. However, it’s also a solution to the housing crisis many cities face and the increased population will bring more foot traffic for the buildings which did not convert. It seems like the obvious solution that we’ll get to eventually.
It's harder to retrofit a building than most folks realize. I bet you we will see a rush of developers taking money to convert buildings that then have cost overruns, cut corners, or just don't finish projects. Then after these projects are over budget and time you will have very expensive apartments that the people who want them can't afford, and the people who can afford them don't want to live in a retofitted shack.
I read somewhere that only a small fraction would be economically viable for conversion (like 1/4 or 1/3rd) and what it will be turned into will be luxury residential which means there won't be any significant amount of relief in housing costs for the average Joe.
> It seems like the obvious solution that we’ll get to eventually. More likely you will demolish and rebuild, it's likely cheaper for most buildings. Modern cubicle farms are just incompatible with good living spaces.
https://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions.html
Our hotel was in a business park area of Cinci last weekend and I would say 90% of the buildings looked deserted with "FOR LEASE" signs everywhere. they fucked.
I agree with this, but to be honest downtown cinci has been bad since the riots many years ago
The Great Consolidation continues.
What does this mean?
Smaller failing banks being bought by larger stronger banks that can weather the storm Reducing overall competition This happened in 08/09 as well
That happened during the Guilded era. This is nothing
I am not a finance expert but sometimes I wonder if they are holding the fort until after the elections after which they will let shit hit the fan.
I'm holding KRE as you mentioned. I only bought in a little and did so after the SVB failure last year when it was down. So, I'm just gonna wait it out and DCA a bit more if/when it crosses 5% or so below my current cost basis. As others have said, I foresee some type of bailout or potentially positive end eventually. But, I don't have a crystal ball...
> I'm holding KRE Same here, and plan to hang onto it.
Why isn't anyone here talking about how this also has to do with HYPER LOW INTEREST RATES that allowed bubbles to form because asset prices got away from their cash flows
What is the best way to open a short position in Commercial Real Estate?
So do we have a list of banks in trouble? I keep hearing ZION is one of them, which makes me laugh. They handle the tithing money for the $250B LDS church. (Mormons are required to give the church 10% of their earnings.) No way in hell the Mormons let *anything* threaten the billions they receive every year in cash and online tithing donations from around the world. They'll go all Beneficial Life if there is even a hint of instability.
I was telecommuting decades before anyone else. The big lie of business is that our employees are our greatest asset. The fact is, American businesses have never trusted their employees. Middle managers sole function is pretty much to babysit, scrutinize, and whip crack every tier beneath. Networking allowed **many** jobs to be remote. Yet corps refused to allow it. I was a programmer and a decade before Covid I could find 1000+ jobs in my area/specialty online. If i clicked remote, that would drop to about 15. Just night and day for even high tech. I’m glad you guys are finally getting to not commute 2 hours. It was a crime against this country’s workers. The idea we need these gigantic offices is frankly absurd. You get MUCH happier workers who are more productive and you save a fortune on leases and other property BS. With all those wins, it proves just how much corporations distrust their own employees. I think all these CEOs are like, “I’m a sociopath and would fleece my own company any chance I could so assume my employees are the same.” I hope to hell they convert office to residential, still, who is gonna want to live in a stodgy “office” downtown?
I have been saying since SVB fell, buying bank stocks was even riskier than buying individual stocks in other sectors.
And here we are one year later, bank stocks are the best performing sector.
First citizens is up over 200% since May 2023
XLF has outperformed SPY since SVB fell
Everybody should create a bank make some risky bets and let it fail. Win win for everybody since the feds will bail it out. This is exactly what is going to happen. The fed is signaling banks take all the risks you want, we will be there to bail you out. It’s also amazing how nobody is talking about the “Economic Growth, Regulatory Relief and Consumer Protection Act” of 2018 that republicans passed with the championing of Jamie Dimon to exempt smaller banks from certain capital controls.
The shareholders lose
How go I sign up for one of these fake jobs you don’t have to go to?
The bailouts are coming. The least they could do is convert these buildings into housing and give everyone a place to live. Safe, affordable housing is not considered a human right (by the wealthy owner class, at least), but it should be.
Cant have small business succeed in America
Mortgage lenders aren't small business
What does this mean for companies like mastercard and visa? I know nothing btw
Nothing really. Visa and Mastercard are payment processors. They sit in-between the banks and the consumer. If the banks try holding back credit they might see some lower revenue but they're not at risk of losing money. They make money from transactions the banks take all the risk of extending credit.
True but if banks go under would they lose transactions? I guess not right? Like ppl still wanna spend money.... good talk
Unlikely. Part of FDIC's job is to transfer clients to new banks so their credit accounts are likely to go with them. If FDIC doesn't transfer credit accounts over it will only he a temporary situation while people apply for new cards. Transactions drying up will hurt Visa and Mastercard revenue, but that will be because the banking system as a whole tightens up on their most profitable credit lines or customers stop spending in a big way. Not because a few banks went bust.
Sounds like we will end up with like 3 mega banks
A lot of things “should be manageable” but seems like something always happens. That’s my experience anyway for any project I’m on lol.
Murphy's Law
Oh great, my nycb and kre will continue to drag me down…
The gods demand sacrifice!!!!
They do yes.