Real Estate: Navigating the Perfect Storm for Commercial RE

April 23, 2020 | News, Real Estate
https://dailyalts.com/wp-content/uploads/2019/10/55e8d4414951b114a6d98074cf213576083edbe25252754c772978_640.jpg

This is the perfect storm for commercial real estate markets in the United States.

As 2020 started, the consensus opinion was that commercial real estate might see a slowdown in growth rates. However, thanks to an economy that was growing slowly but growing and low-interest rates, CRE would still be an attractive investment opportunity.

COVID and Commercial Real Estate Markets

The COVID-19 showed us once again how unreliable even well-informed predictions can be in an uncertain world. Restaurants and shops are empty, and landlords are finding that with the doors closed, tenants cannot pay rents. Most office buildings remain vacant across America. The question is whether occupancy levels will rebound.

With millions of employees working from home, the possibility of office demand dropping as companies opt for remote working for more its workforce, overall demand for office space could decline.

Commercial Real Estate owners and brokers had to feel a shiver run down their spine last week when James Gorman, The CEO of Morgan Stanley (MS), told Bloomberg TV that he expected the financial services giant to come out of the pandemic with “much less real estate.” He pointed to the success that Morgan Stanley has had with remote working this past month. He said that his workforce had proven they could succeed with a much smaller footprint.

The Impact on Credit

Lending markets are tightening up as well. Commercial Mortgage-Backed Securities new issuance will likely drop by half this year.  The reduced rate of issuance could lead to enormous problems for the companies that have more than $60 billion of CMBS debt that needs to be refinanced over the next couple of years.

CMBS default rates were just 2.6% in March, but according to analysts at Moody’s, that does not reflect the damage done across the commercial real estate sector yet. As more tenants find themselves unable to pay rents, that number will move higher. Defaults peaked at 10.27 % of the Great Financial crisis, and some observers and participants in the industry think this time might be worse.

The crisis may pass in a few months, but it will take a lot longer for commercial real estate to recover from the economic shutdown.

Recent: Real Estate: Taubman Letter Shows How Ugly April Will Get for Commercial Real Estate

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Shape

Latest Alternative Investment News

https://dailyalts.com/wp-content/uploads/2021/07/bitcoin-2668211_640.jpg
Digital Assets: Bitcoin Closes In On $40K After Amazon Rumors Spark Rally
July 26, 2021     Digital Assets, News

Bitcoin, the leading cryptocurrency, which had been in a downtrend since its April highs, and tested $30,000 on more than one occasion, surged nearly 15% after a rumor that Amazon…

https://dailyalts.com/wp-content/uploads/2021/07/rivian-r1t-7.jpg
Venture Capital: Rivian Lands $2.5B; Plans Second EV Plant Including For Batteries
July 26, 2021     Latest News, News, Venture Capital

Electric vehicle maker Rivian announced Friday (July 23, 2021) its close of a $2.5 billion funding round led by Amazon’s (NASDAQ: AMZN) Climate Pledge Fund, D1 Capital Partners, Ford Motor…

https://dailyalts.com/wp-content/uploads/2021/07/champagne-2178775_640.jpg
Liquid Alternatives: Three Reasons
July 26, 2021     Liquid Alternatives, News

Spawned after the 2008 financial crisis, liquid alternatives have disappointed investors. During the 2010s, these instruments averaged an annualized gain of 1.66%. Writing in Morningstar, columnist John Rekenthaler makes a…

https://dailyalts.com/wp-content/uploads/2021/07/Ez4eEsTWUAMC8Gz.jpg
FinTech: UK-Based PensionBee Reports Assets Under Administration Have Doubled In A Year
July 26, 2021     FinTech, News

An influx of new customers has boosted two-fold PensionBee’s assets under administration as at June 30, 2021. Further, in a landmark year, PensionBee (LON: PBEE) raised £55 million from an…