(Daily Caller)—The commercial real estate sector is facing the possibility of a substantial number of bankruptcies that could ultimately hamper economic recovery and threaten the wounded banking industry, according to experts who spoke to the Daily Caller News Foundation.
Overall 30 day+ delinquencies on commercial mortgage-backed securities (CMBS), meaning the number of borrowers for commercial properties that failed to make a required payment in at least the last 30 days, increased from 2.96% from one year ago to 4.63% as of October, according to a report from market research group Trepp. The delinquencies are indicative of danger in the commercial real estate sector, as they indicate that many of those could become bankruptcies, threatening an already hurting banking industry and exacerbating any economic downturn, according to experts who spoke to the DCNF.
“Commercial real estate is in deep trouble and could constitute a major risk to the banking system and the recovery,” Desmond Lachman, a senior fellow at the American Enterprise Institute, told the DCNF. “In fact, I would characterize the situation as a slow-moving train wreck. The underlying problem is that occupancy rates have slumped post-Covid since many workers are now working at least part of the time from home.”
Vacancy rates for offices have continued to trend up since the COVID-19 pandemic, which forced many businesses to adopt remote work to continue operations — a change many workers have been reluctant to let go of, according to a report from Cushman & Wakefield. In 2019, the vacancy rate hovered around 13% and has increased to around 20% as of the third quarter of 2023.
“The pandemic was an aggravating force that gave the shift from brick-and-mortar to laptop purchasing critical mass 20 years after it began,” Peter Earle, an economist at the American Institute for Economic Research, told the DCNF. “People, even (and especially) those who were suspicious of internet retail or liked the in-person shopping experience, were forced to move their consumption online during lockdowns and under stay-at-home orders. Many of them liked it, came to trust it, and now see little reason to go back to physical establishments.”
Delinquency rates for offices have seen the largest jump among commercial real estate, rising from 1.75% on 30 day+ delinquencies last year to 5.75% as of October 2023, according to Trepp. Industrial property delinquencies increased from 0.43% to 2.56%, and multifamily property delinquencies increased from 0.85% to 2.64% over that same time frame.
Retail delinquencies over the past year have managed to remain mostly stable as they are not hampered by factors like an increasing number of remote workers, according to Trepp. Despite being stable, delinquency rates for retail measured 6.55% in October 2023, lower than one year ago when it was 6.66%, but still greater than any other category in commercial real estate.
“To the extent that a commercial real estate slump creates job losses among staffers and maintenance people, a recession will be exacerbated by bankruptcies or liquidations,” Earle told the DCNF. “The longer-term effects, which would include canceling planned construction or freezing existing projects, would impact the building and materials industries as well. Further negative impacts could materialize if regional banks, which have lent substantial amounts to commercial real estate builders and owners over the past decade or two, find themselves mired in rising loan defaults.”
U.S. banks outside of the top 25 in assets hold around 37.6% of all loans but hold an astonishing 67.2% of all commercial real estate loans as of March, according to Axios. As of the last quarter of 2022, 40% of loan officers were tightening their lending standards in the commercial real estate sector as the industry becomes a riskier bet.
Small and medium-sized banks have been the cause of concern for some following a banking crisis at the beginning of 2023. Silicon Valley Bank collapsed after a bank run in March, with Signature Bank and First Republic Bank following suit, leaving many regional banks to struggle as depositors fled to larger banks that they believed would be a safer bet.
WeWork's $47 billion collapse could be the straw that breaks regional banks.
It could put nearly 600 commercial leases on the block, sticking the landlords — and their banks — with the bill.
Commercial real estate accounts for 30% of regional bank loans — roughly $300 billion.… pic.twitter.com/jxXlDQp6qK
— Peter St Onge, Ph.D. (@profstonge) November 17, 2023
“All of this is particularly bad news for the regional banks since as much as 18% of loans are made to this sector,” Lachman told the DCNF. “If the regional banks have to restrict lending because they are having large loan losses, this could spell trouble for the small and mid-sized companies that are hugely reliant on the regional banks for their credit. And those small and mid-sized companies account for close to half of overall employment.”
The Federal Reserve has raised its federal funds rate to a range of 5.25% and 5.50%, the highest rate in 22 years, after a series of 11 hikes that began in March 2022 in an effort to combat inflation. Inflation peaked at 9.1% in June 2022 and has since decelerated to 3.2% in October, far higher than the Fed’s 2% target.
Amid fears about the struggling industry, lending for commercial and multifamily mortgages dropped 49% year-over-year in the third quarter of 2023, according to Market Insider. The slowdown could be increasingly felt by the broader economy over the next few years, with around $1.5 trillion in debt needing to be paid back as the possibility for defaults increases.
“I think that the commercial real estate sector is a major risk to the economic recovery and that the Fed and the markets do not seem to be paying sufficient attention to this matter,” Lachman told the DCNF.
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Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
