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1   gabbar   2023 Mar 25, 10:53am  

Are corporate loans unsecured? And student loans can't be discharged in bankruptcy? If yes, how the fook is this even reasonable?

2   Misc   2023 Mar 25, 8:18pm  

SVB wasn't as heavily regulated (less short term cash required) because it wasn't Systemically important. It had about $200 billion in assets and about 60% were AAA.. When the Treasury/FDIC/Fed bailed out the depositors, the regulators could only do so because they gave it the "Systemically Important" designation. With the Fed's new lending facility, where they give loans at par value on AAA securities they have bailed out the banking system (for now).

Met Life went through great amounts of lobbying to lose its title of being "Systemically Important". It has $638 billion in assets. Only about 13% of its assets are AAA. The rest is various amounts and kinds of crap. There is no telling what its insurance portfolio is comprised of (especially its credit default swaps). It is not backed by the Federal government. Instead, the government of New York state provides a very limited backstop to policyholders. It is also regulated by the State of New York.

The rest of the insurance industry has equally bad portfolios and their policies have limited protection from the various states they are headquartered out of.

Does anyone think there will be a happy ending?
3   AD   2023 Mar 25, 8:46pm  

Yep :-/

from the Financial Times published 2 day ago

"Commercial property loans are joining deposit flight and bond portfolios as the biggest perceived risk for US banks as rattled investors fret about lenders’ strength following the collapses of Silicon Valley Bank and Signature Bank.

Strains in the $5.6tn market for commercial real estate loans have deepened in recent months as the Federal Reserve’s year-long series of interest rate rises leads to sharply higher borrowing costs and weakening property valuations. Analysts fear any further reduction in lending — say, from businesses more keen on hoarding deposits following two shock bank runs in a week — could make a perilous situation worse.

The threat of a credit crunch rippling across the global financial system has overtaken inflation this month as investors’ biggest worry, according to a monthly global survey of fund managers by Bank of America.

Thousands of small and medium-sized banks that make up the bulk of US lenders account for about 70 per cent of so-called CRE loans, according to JPMorgan analysts.

Most of the products are not repackaged for the asset-backed securitisation markets so remain on banks’ books. CRE loans make up 43 per cent of small banks’ total lending, against just 13 per cent for the biggest banks. "
4   FortwayeAsFuckJoeBiden   2023 Mar 25, 8:52pm  

die fucking banks die in a fucking fire along with realtors too, take them with you!
5   Eman   2023 Mar 25, 11:03pm  

Not really. Here are a couple slides from the YouTube video you shared.

11T worth of CRE with $4.5T in debt. That’s 41% LTV. Max LTV on CRE tends to be 75%. Most lenders stay at 70% LTV. Max LTV with First Republic Bank is 60%.

He also mentioned $2.5T of CRE debt will come due in the next 5 years so about 12% each year on average with 41% LTV. How many percent of these loans will default? How many will work out a deal with their lender so there’s no default? This is he beauty of CRE. Everything is negotiable.

As the gentlemen in the video, who was interviewed by MeetKevin, said higher interest rate, but there are no deals like 2008-2010. It’s because prices are still higher while existing owners have holding power and are not forced to 🔥 sale.

When the loan comes due, there are a few options I see: 1) let the loan float and keep servicing the debt, 2) cash-in refinance if the property owner believes interest rate will continue to go higher so lock in the current rate, 3) ask the bank for a forbearance if no cash is available and keep servicing the debt at the existing rate. The difference in monthly payments gets add on the back end of the loan, or 4) modify and ask for an interest only loan to keep the payments low. All in all, high chance the banks will be made whole with their loans in the event of a default.

These loans are on the bank’s balance sheet. A default is bad for their book while a performing loan is good. At worst and the lender has to foreclose, the lender will likely be made whole as the max LTV is between 60-75% while asset value hasn’t budged much as that gentleman in the interview said. The Fed realized this….conservative LTV. This was why they offered banks to borrow money at “par value” for the collaterals. THE HIGHEST RISK FOR A BANK FAILURE IS A BANK RUN, not asset default like what the YouTuber is saying IMO. Sometimes, people get the right outcome with the wrong conclusion.

From what the banks telling me, multifamily and industrial are the two best performing asset class. The weakest one is office buildings at the moment. Other sectors are in between. Just my 2 cents. Take it for what it’s worth.




6   AD   2023 Mar 25, 11:11pm  

Eman says

From what the banks telling me, multifamily and industrial are the two best performing asset class. The weakest one is office buildings at the moment. Other sectors are in between. Just my 2 cents. Take it for what it’s worth.


I'm seeing a lot of multifamily (apartments and townhomes) construction in the Florida panhandle and they don't have trouble filling up.

As far as conditions with office buildings, is part of that due to work from home and offices cancelling leases such as only needing 3 floors of a building instead of 7 floors ?

.
7   Misc   2023 Mar 25, 11:35pm  

The Fed's new loan facility only loans at par on AAA securities ie. treasuries, and GSEs not commercial loans.

The 'V' part of the LTV is calculated based on rents and a certain payout percentage rate less a little to factor in vacancies after taking out expected expenses. When it comes time to refinance the LTV is going to go over 100% in a lot of cases based on what the owner can sell it for. This means the owner can bring in funds to reduce the amount borrowed, they can arrange it so that payments could be more than the realized rental income and hope things improve, the lender can write down the amount outstanding (this rarely occurs) or the property can be sold to another buyer where the outstanding loan on the property is less.

There is likely going to be a "Credit Crunch" for CRE. Meaning that the total outstanding loans for the sector are going to be lower than they are now going out for the next few years until rates drop or rents rise.

The banks shouldn't take much in the way of losses unless things deteriorate further.
8   Eman   2023 Mar 26, 12:01am  

ad says

Eman says


From what the banks telling me, multifamily and industrial are the two best performing asset class. The weakest one is office buildings at the moment. Other sectors are in between. Just my 2 cents. Take it for what it’s worth.


I'm seeing a lot of multifamily (apartments and townhomes) construction in the Florida panhandle and they don't have trouble filling up.

As far as conditions with office buildings, is part of that due to work from home and offices cancelling leases such as only needing 3 floors of a building instead of 7 floors ?

.

To be honest, I’m not familiar with the office space. Your guess is probably right. We get our information from our loan officer at JPM as well as other smaller outfits.

As you have witnessed, the multifamily space is holding up well. To say that banks are scared and not lending is inaccurate IMO. Banks are in the business of lending. They just have to underwrite new loans at a higher rate; thus a bigger down payment is required on new purchases as the sellers haven’t budged much on sale price. I guess buyers, who are buying in this environment, are anticipating that rates will come down in the next few years, and they can refinance. They’re probably right. I’m not as confident so I’ve been staying put.
9   AD   2023 Mar 26, 12:38pm  

Commercial real estate could be converted to residential if there is a future glut due to various mega-trends like work from home, etc. Not as much office space is needed because of these mega-trends. This is one way to recover from a future financial disaster with commercial real estate.

They could also employ mixed use high rises : https://architizer.com/projects/mixed-use-high-rise/

I was looking at the Coast Guard headquarters building next to Fort McNair. It was converted to condos or apartments.

That entire area by the Washington Navy Yard and Washington Nationals stadium has changed or "gentrified" :-/

.
10   richwicks   2023 Mar 26, 12:55pm  

ad says

They could also employ mixed use high rises : https://architizer.com/projects/mixed-use-high-rise/


That looks awful. Let me show you an intelligent mixed used space, that exists.

https://www.google.com/maps/@37.3821825,-122.0765173,3a,75y,30.95h,84.07t/data=!3m6!1e1!3m4!1sARevcvfMPwlD1arPGDbY-g!2e0!7i16384!8i8192

The bottom floors are commercial, and top floors residential. There's quite a few mixed use buildings here, that's one of the nicer ones in my opinion.
11   Eman   2023 Mar 26, 1:50pm  

ad says

Commercial real estate could be converted to residential if there is a future glut due to various mega-trends like work from home, etc. Not as much office space is needed because of these mega-trends. This is one way to recover from a future financial disaster with commercial real estate.

They could also employ mixed use high rises : https://architizer.com/projects/mixed-use-high-rise/

I was looking at the Coast Guard headquarters building next to Fort McNair. It was converted to condos or apartments.

That entire area by the Washington Navy Yard and Washington Nationals stadium has changed or "gentrified" :-/

.

You’re absolutely correct. There are a few industrial buildings in downtown San Jose that got converted to condos successfully. I don’t know all the details and the cost of getting them converted as it’s not my area of strength. Here’s a link to one of the condos that got converted.

https://redf.in/HmMs4m
12   Al_Sharpton_for_President   2023 Apr 8, 6:00pm  

Eman says

As you have witnessed, the multifamily space is holding up well.

Multi-Tenant Apartment Building Sales Drop 74%, The Most Since 2008
Thanks to higher interest rates, turmoil at regional banks, and slowing rent growth, sales of apartment buildings are falling at their fastest rate since the subprime-mortgage crisis, the Wall Street Journal reports.

In the first quarter of this year, investors purchased approximately $14 billion of apartment buildings - a decline in sales of 74% from the same quarter last year, according to preliminary data from CoStar Group. The drop could be the largest annual sales decline for any quarter going back to a 77% drop in Q1 2009.

The $14 billion in first-quarter sales was the lowest amount for any quarter since 2012, with the exception of the second quarter of 2020 when pandemic lockdowns effectively froze the market.

The recent drop in building sales follows a stretch of record-setting transactions that peaked in late 2021, when the multifamily sector was a top performer in commercial real estate. Cash-rich investors had a strong appetite for apartment buildings. Their top choices were in Sunbelt cities such as Dallas, Phoenix and Tampa, Fla., where rental housing is largely unregulated and rents were rising 20% or more annually until last year. -WSJ

The combination of factors noted above mean that the math for buying an apartment building doesn't pencil out in many cases - as the cost to refinance purchases has jumped along with interest rates. In some major metro areas, rents are also flat or declining, after record increases.

The Journal also notes that thanks to an upheaval in banking, it's become more difficult to finance buildings, according to investors and analysts, who say banks are either pulling back on lending or only doing so at very high rates.

But there is one type of sale most everyone expects more of: forced sales. A number of investors bought buildings in recent years with short-term, floating-rate debt. Because of rising interest rates, those loans cost a lot more to pay down than they did when building owners first borrowed the money.

The remaining balance of many floating-rate loans will come due this year, and borrowers whose buildings aren’t bringing in enough cash every month might have to sell their buildings to pay off their debts. -WSJ

"Nobody wants to take a loss when they don’t have to," according to Graham Sowden, chief investment officer at RREAF Holdings, a real-estate investment firm based in Dallas.

The trend in apartment buildings follows a similar pullback in the broader residential housing market, where home prices fell year-over-year for the first time since 2012, with sales volume declining sharply as well, for the same basic reasons.

In February, the prices of multifamily buildings dropped 8.7% vs. the same month last year according to the MSCI Real Assets pricing index.

Green Street, which tracks publicly traded landlords, found a 20% drop in building values from their late 2021 highs.

Meanwhile, brokers and investors aren't expecting building sales to pick up anytime soon - in part because of a backlog of nearly 500,000 new units that are slated to be delivered this year, the most in almost 40 years.

According to Trevor Koskovich, president of multifamily at the Northmarq brokerage firm, "We're in the very early stages" of floating-rate loans coming due this year, and various things hitting various fans.

https://www.zerohedge.com/economics/multi-tenant-apartment-building-sales-drop-74-most-2008
13   WookieMan   2023 Apr 9, 1:51am  

Eman says

You’re absolutely correct. There are a few industrial buildings in downtown San Jose that got converted to condos successfully. I don’t know all the details and the cost of getting them converted as it’s not my area of strength. Here’s a link to one of the condos that got converted.

Been doing it in Chicago forever. We sold probably a dozen listings at this development around 2006-2014: https://www.dreamtown.com/property/1033-w-14th-place-117/11727058
Tax freeze helped make them sell even during the downturn.
2 or 3 here: https://www.dreamtown.com/property/1550-s-blue-island-avenue-1121/11719273
This building was in a shit spot though. They did build a new police station down the block. It's where they film Chicago Fire (if that's even on the air anymore).
Another example. This one had a billboard support pole through the middle of it. Was warehouse space prior. I've walked through so many damn buildings. https://www.dreamtown.com/property/1600-S-Jefferson-103/11687288
14   Eman   2023 Apr 9, 5:27am  

Al_Sharpton_for_President says

Eman says


As you have witnessed, the multifamily space is holding up well.

Multi-Tenant Apartment Building Sales Drop 74%, The Most Since 2008
Thanks to higher interest rates, turmoil at regional banks, and slowing rent growth, sales of apartment buildings are falling at their fastest rate since the subprime-mortgage crisis, the Wall Street Journal reports.

In the first quarter of this year, investors purchased approximately $14 billion of apartment buildings - a decline in sales of 74% from the same quarter last year, according to preliminary data from CoStar Group. The drop could be the largest annual sales decline for any quarter going back to a 77% drop in Q1 2009.

The $14 billion in first-quarter sales was the lowest amount for any quarter since 2012, with the exception of the second quarter of 2020 when pandemic lockdowns effectively froze the market.
<...

This is being taken out of context. Holding up well = lower chance of default when the loans mature or become adjustable. We’re talking about loans on the banks’ balance sheets, not sales.
15   Al_Sharpton_for_President   2023 Apr 9, 5:35am  

Eman says

This is being taken out of context. Holding up well = lower chance of default when the loans mature or become adjustable. We’re talking about loans on the banks’ balance sheets, not sales.

Al_Sharpton_for_President says

The combination of factors noted above mean that the math for buying an apartment building doesn't pencil out in many cases - as the cost to refinance purchases has jumped along with interest rates. In some major metro areas, rents are also flat or declining, after record increases.


Al_Sharpton_for_President says

The remaining balance of many floating-rate loans will come due this year, and borrowers whose buildings aren’t bringing in enough cash every month might have to sell their buildings to pay off their debts. -WSJ

Al_Sharpton_for_President says

According to Trevor Koskovich, president of multifamily at the Northmarq brokerage firm, "We're in the very early stages" of floating-rate loans coming due this year, and various things hitting various fans.
16   Al_Sharpton_for_President   2023 Apr 12, 2:55am  

Even Mush is on board, although RJ Talks nailed it way before him.
***
Multifamily Apartment Owner Foreclosed On 3,200 Units in Houston

A record $151.8 billion in mortgages backed by apartment buildings are set to expire this year, and $940.1 billion over the next five years. Good luck with that.

Banking woes are not just commercial real estate. Multifamily housing is taking a hit as well.

Please note Houston Apartment Owner Loses 3,200 Units to Foreclosure as Multifamily Feels the Heat.

An apartment-building investor lost four Houston complexes to foreclosure last week, the latest sign that surging interest rates are beginning to upend the multitrillion-dollar rental-housing market.

Applesway Investment Group borrowed nearly $230 million to buy the buildings with more than 3,200 units as part of a Texas buying spree during the pandemic. Arbor Realty Trust, a publicly traded mortgage company, foreclosed on the properties after Applesway defaulted on the loans, according to public documents filed in Harris County, Texas.

Real-estate analytics firm Green Street estimates that apartment-building values are down more than 20% from their peak. Meanwhile, rent growth is slowing, meaning some buildings with sizable, floating-rate mortgages no longer generate enough profits to make debt payments.

The interest rate on Applesway’s loan had risen from 3.4% to around 8%, according to loan information obtained from data firm Trepp Inc. At least two of the properties were financed with about 80% debt, which is considered high leverage in commercial real estate.

Some other large investment firms have had payment issues with floating-rate multifamily loans in recent months. Veritas, a San Francisco private-equity firm, defaulted on a $450 million loan backed by rent-controlled apartment buildings, and Blackstone Group is negotiating with its lender over the debt on a portfolio of New York City apartment buildings.

https://mishtalk.com/economics/a-multifamily-apartment-foreclosure-wipes-out-a-3200-unit-building-in-houston

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