Yeah I have been expecting commercial real estate to crater since 2020, felt like it was always just a question of how long they could push it back.
Yeah I’m saying he’s exhibiting zero concern for those of us younger. I think a crash and recovery right now would be fine for me, but the house of cards falling would be bad.
Sure, but a crash doesn’t offer any extra opportunity just because the market is lower - especially if you assume that the market reasonably efficient. It’s all what presents itself in the future and in the mean time things are a lot worse for those who need to make money compared to those who have it.
Real estate is about to get slaughtered. Interest rates are now higher than cap rates (negative leverage), which means a huge percentage of properties are underwater and/or won’t be able to be refinanced. It’s going to be a bloodbath.
By underwater, do you mean that the rent collected is less than the monthly mortgage payment? Real estate prices are currently at record highs or pretty close to it (maybe 5% off in some places).
JP Morgan Chase investors on Tuesday voted down a multimillion-dollar payout for CEO Jamie Dimon. The pay proposal they rejected included a massive $52.6 million retention bonus as part of Dimon’s 2021 compensation package, just months after the bank’s board approved the incentive. With the bonus, Dimon’s total compensation was $84.4 million in 2021, up from $31.7 million in 2020.
Yeah lucky ducky me if I die or burn through my nest egg at an assisted living facility before the crash comes.
Lol @ u with your youth and health. Sucker.
That’s one way to look at it, the other is that if you check out just before all of that hits you, those of us born later than you would have a way lower overall quality of life, and spend a good chunk of our lives living in way worse conditions. Our youth and health would be spent working longer hours for less buying power and experiencing more stress, and that’s before climate change.
My point is, those of us younger than you who keep reading your posts about hoping the entire system doesn’t collapse until you’re gone are already frustrated with the older generations fucking us over without a care, so you’re just triggering us. You don’t seem to care, though, so enjoy.
This is the weirdest argument. How much age difference even is there between you guys?
I’m guessing about 15-20 years. I’m 35, I think he’s mid 50’s. My point is just that anyone just saying they know the system is going to collapse, but they just hope the system doesn’t collapse while it’s their ass on the line without expressing a care in the world about anyone subjected to such a collapse behind them is making dickish comments, which they wouldn’t do amongst friends if they gave a shit.
Also that it’s that type of sentiment held by voters that gave us all the bad shit the Boomers did to our systems/economy. More benefits? Yes. More taxes? No. Will it hurt the people behind me? Lol who cares!
Well it’s going to collapse someday. All empires come to an end eventually.
We’re not living anything remotely close to Star Trek future long term sustainability as a species. And as people from rich countries, a huge bulk of that is on us as individuals. So we’re all fucking over the world and future generations right now.
We’re basically a giant rabbit colony that burns through all the nearby grazing, and is about to have a population crash. Billions of people are going to starve. Wars will be fought over shrinking resources. The US probably nukes someone.
So when you get my age you’ll probably just be hoping the thing holds together a little while longer as well.
Also I don’t think anyone else is triggered by me saying I hope I kick the bucket before it all falls apart. You’re the first to ever say anything.
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-1.5 futures. Here we go
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Yuh. Suzzer is not the enemy. Theres a big difference between “I hope I’m gone before the crash” and boomers deliberately making it worse for others so long as they’ve got theres.
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Bit of Riverman porn:
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I haven’t followed that for a while. Does this mean thy have to buy a bunch of gamestop to close their short positions?
Pretty amazing that a famously short fund is closing shop in this environment that should be wildly lucrative for shorts.
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Commercial real estate trades on a multiple of operating income, expressed as a cap rate, which is essentially the return on purchase price. So a 5% cap rate means someone is paying 20x annual operating income (1/.05 = 20).
For years now capital has poured into commercial real estate because stock valuations were so high and bond yields have been terrible. Oh and also because there are HUGE tax benefits. This has resulted in truly absurd asset values. In some markets apartment complexes and industrial buildings have been routinely trading at a 3% cap rate, or 33x annual income.
These transactions are financed with debt. For a long time everyone just got used to that debt being extremely cheap, from 2% - 3%. But now it is at 5% (it prices off the 10-year treasury). Even if building owners are able to service debt on fixed rate loans they locked in before the runup in rates, they won’t be able to refinance. This is where the pain happens, and it takes time.
Example:
An apartment building has operating income of $1 million. An investor buys it at a 4% cap rate for $25 million using 80% debt financing ($20 million) at 2.5%. Now, all of a sudden, interest rates are 5%. Equity has to return more than debt, so the cap rate goes to 6.5% and the building is only worth $15.3 million. At maturity the owner can’t refinance the debt and has to either bring in more equity or default.
This also happens with maturing construction loans. Projects have been built on the assumption cap rates and interest rates would remain low. If that isn’t true anymore (it isn’t), developers will not be able to refinance these loans. Not good for the banks.
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Seen this movie before.
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Yesterday wasn’t bad!
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If the consensus feels is “mid teen fed” …
Can I get a Thanks Obama!
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Should have bought TJ maxx
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Do you think we’re likely to see developers or financing sources pulling the plug on partially complete projects? There are probably a lot of in-process developments that would not have pencilled out if you knew what cap rates were going to be at delivery, but that got started anyways. From a social perspective, most of those probably ought to be completed, because they do pencil net of sunk costs, but there’s not much incentive for a developer to put a lot of effort in if they are just going to have to hand the keys over to the bank when the construction loan comes due. Less clear to me what the construction lender thinks (and how much discretion they actually even have).
Not sure what your experience is today, but when I was involved in the industry, most of the long-term financing seemed to be CMBS. One hopes (but is not confident) that modern CMBS is actually getting the risks out of banks and over to investors who can actually bear the losses when they show up. How do you feel about that?
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