There’s going to be a lot of pain in this arena. Work from home might end up being the second most disruptive economic factor going forward besides AI.
It’s obvious workers aren’t going to be coming back to 9-5 in an office with uncomfortable clothes, a 40 minute commute, and a middle management boss up their butts for something that could’ve been done with a phone call or email from home.
Speaking of disrupting the commercial real estate market. This would also e devastating to the market of the money laundering got rooted out
So how will CRE devaluation play out ?
I’m guessing banks will get stuck with writing down at least 1/2 value of the loans in
their portfolio. That could trigger some bank failures and of course funds that specialize in
that investment will see likewise drops. Owning bank stocks may not be wise either in near term ?
Long term , the empty towers need to utilized some way or torn down, Seems like only a small percent can be converted to residential use. I wonder if some could be used by school districts or universities for classroom space ? Homeless shelters ?
I’m watching Starwood. I owned the stock until a year or so ago. Paid tremendous dividends. I think they have problems
From Barry Sternlicht of Starwood at the last earning call… I think it’s going to get better, when will they get better? And I think it’s pretty clear that most every property type things are okay at the property level. And so it’s really a question of how you finance yourself. This is a balance sheet crisis in United States, not a property level crisis. Most of the asset classes, while there are some decelerating rents in multifamily. Most everyone is sophisticated in real estate knows that the supply of new apartments is going to fall precipitously as soon as this wave completes more or less middle of '25.
And then rents should reaccelerate. So you are seeing buyers come out of the woods, particularly since the credit markets, the CMBS markets are wide open, even diversified portfolios are getting done in the CMBS market spreads are in. So the markets are repairing themselves. And even the tone of the banks, at least the large banks is getting slightly better as they grasp, but to get their arms around what they have and who’s going to do what with what. It is remarkable how many sponsors are coming in and working to fix their capital stacks, buying caps, trying to push their loans into coverage ratios. I think there’s a lot of dry powder on the sidelines. And there you’ve recently seen Blackstone’s large take private of a multifamily two of them, in fact, one in Canada, one in the U.S. There are transactions taking place in the private sector and we’re kind of, it’s definitely the yellow flag.
Okay then. I almost feel like they are speaking in a foreign language in that piece.
Sounds like he’s calling it “all clear; nothing to see here; move along”
Well except for “a balance sheet crisis”.
Yeah, I get that sounds bad, but didn’t real understand what “ not a property level crisis” means ?
I get it things on the balance sheets are going down.
Then he talks about the “dry powder” …which I had to look up as well…
In the financial realm, the term dry powder is a euphemism that primarily refers to the cash reserves an individual company proactively maintains so that it can meet its obligations during times of economic stress.
So dry powder is a good thing …I found the points he was making a bit confusing. But I don’t
speak financial speak.
Bottom line, I think Sternlicht is scrambling. His assets are producing but valuations are dropping. His dividend is still attractive but the stock price isn’t going up.
Yeah, I saw 4 quarters of eye popping 10% dividends. That’s out of my comfort range - too good
to be true thing for my skeptical eyes.
Of course all of us notice prices are higher than pre-pandemic. That sucks. However, prices (besides rents) shouldn’t be going up much more this year.
Paul Krugman
@paulkrugman
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5m
So core inflation ex shelter — which lags far behind market prices — was 0.0 mom and 1.9 yoy. Inflation has basically been defeated.
The vast majority of Americans live paycheck to paycheck. Their biggest expense items are gasoline, groceries, rent and interest rates.
The one thing the Covid shutdown did was give people a delineating event. There is pre covid and post covid. People remember what their economic situation was pre-covid. Normally people can’t remember last month.
For the vast majority of paycheck to paycheck Americans (which is the vast majority of Americans) they won’t be satisfied until their situation matches pre-covid. It is why when we get good inflation numbers people aren’t happy.
This morning on CNBC they claimed energy prices helped core inflation. I did a double take and went huh? Food and energy are supposed to be excluded from core.
The only way prices go down is deflation and we definitely don’t want that.
I think a valid point in the inflation argument is you’d like things more spread out across the entire CPI. When it is concentrated in fields far, far outpacing other things, looking at you housing, it creates or exacerbates the day to day problems.
Of course the only way to rein those in creates a whole other set of problems.
I don’t agree. Interest rates dropping won’t cause deflation. Gasoline is a commodity so it fluctuates all the time. Rent is a function of interest rates and supply.
Which brings us to grocery prices.
Fair on interest rates. Gas prices aren’t high right now.
Interest rates aren’t impacting everyone’s mortgage though.
Consumer debt is through the roof. It is ridiculously high and very interest rate sensitive.
Gasoline is not at an all time high but historically it is pretty high.
Rent is high and groceries are still high.
I think the worst thing a certain administration can do is to keep chirping that they are slaying the inflation dragon when the inflation items that impact the vast majority of Americans are still high. It just pizzes people off.
Oil is at about its average over the last few decades in 2023 dollars. The oil market was in really rough shape from 2015-2020 which is what everyone compares prices to at this point. We are at the average.
Gas prices the decade before 2015 averaged $3+ which is where we are today. And that’s without adjusting for inflation.
Rent is going to be tough to bring down. You aren’t reducing groceries without deflation.
There is some truth to that. I also think the other side is distorting the message too.
News on inflation isn’t all bad news. It’s not all great either.
Agreed.
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