Falling Property Values In Downtown Areas May Threaten Banks - RealCrowd Recap

July 6, 2021
Falling Property Values In Downtown Areas May Threaten Banks - RealCrowd Recap

RealCrowd's Thoughts

What's Happening Now
Boy has it been a mixed bag since our last newsletter! We’ll start with the good news, which is Pfizer announced a vaccine that was more than 90% effective in its early analysis – this is huge! The next challenge will be producing, distributing and getting enough penetration into the greater population for it to really take effect. We’re all watching and have known since the beginning that until we get a handle on the health side of this crisis, much uncertainty will remain.

As we look at some of the news for the different asset classes, a lot has been said about the retail space and questioning if COVID will be the death of retail. One of our prior podcast guests made a great comment that the US isn’t necessarily overbuilt in retail, but it’s under-demolished. We’ll get another guest’s hot take on this soon when Byron Carlock, head of PwC’s US real estate practice joins us to discuss their 2021 Emerging Trends report. Bryan takes a pretty firm stance on America being over-retailed, so stay tuned for that conversation!

Office, however, still remains in question. I personally don’t believe that office will stop being a thing, but the nature of how we use the space, how offices are configured and the needs of tenants will definitely change as a result of this crisis. While there may be a slight dip in the overall demand for office space, the trend towards densification that we had seen to wane will definitely reverse, seeing fewer people in more space, likely smoothing out any major drop off in demand.

What To Watch
You’ll read in WaPo’s article below discussing the very real threat that decreasing property values could send massive shock through banks and bondholders as a result of the change in user behavior due to the ongoing health crisis. As mentioned above, if we can get an effective vaccine distributed across the US in the first half of 2021, the long-term impact may be mitigated, as we humans have short memories.

If, however, this should continue deeper into 2021, there’s a chance of a more permanent behavior shift that could pose serious concerns for holders of over $3 trillion in commercial real estate debt. How or if any government action would step in to mitigate that potential remains to be seen, and with the likely split control of the White House and Congress, how effective the new administration can be will certainly be in question.

As has been discussed from the beginning, getting the current wave of positive COVID cases under control remains at the peak of importance. Here in Oregon, we were just notified of another round of measures to reduce the spread with hospitals already nearing capacity in the Portland area. Many states have seen their highest numbers over the past few weeks and we’re just starting to settle into the winter routines. Keep an eye on case counts, hospitalization rates and mortality rate as we continue into the colder months.

Stay safe out there, do your part to control the spread, wear a mask and wash those hands!

-Adam Hooper, CEO

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Weekly Metrics

20192020Rent Payments Collected by May 6th81.7%80.2%Rent Payments Collected by June 6th81.6%80.8%Rent Payments Collected by July 6th79.7%77.4%Rent Payments Collected by August 6th81.2%79.3%Rent Payments Collected by September 6th81.2%76.4%Rent Payments Collected by October 6th79.479.4Rent Payments Collected by November 6th81.5%80.4%*Data brought to you by NHMC Rent Payment Tracker

CurrentPrior Week Change10 Year Treasury0.895%+0.080%DOW29,479.81+1,156.41S&P 5003,585.15+75.51Unemployment Rate6.9%--Covid Cases - 7-Day Avg132,442+38,554*Metrics as of Friday, November 13

New Podcast

Discussing The Health Of The Economy

Listen as Jamie Woodwell, VP of Economics at Mortgage Bankers Association, provides a lender's perspective on the current market.

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Key Articles To Read This Week

Many U.S. stores will close forever. That’s a good thing

The U.S. has way more retail space than it needs—an estimated 23 square feet per person, compared to the U.K.’s 5. COVID-19 could accelerate development of the types of spaces Americans actually need.

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Office sector is a ‘big question’ says this commercial real estate veteran

Working remotely some of the time is likely to last, even after the pandemic subsides, David Gilbert says

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What Family Offices, HNWIs Think of Retail Assets in the Current Market

Risk tolerance is a key differentiator determining who is willing to buy in the sector.

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As Covid-19 Surges to New Levels Across U.S., States Impose Flurry of Measures

Cases top 100,000 for ninth day; ‘Our spring surge and summer surge were nowhere like this’

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The next economic crisis: Empty retail space

As tenants stop paying and shrink their offices, commercial real estate is cratering.

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Fed Chair Powell Says Rising Virus Cases Could Challenge Economic Recovery

Jerome Powell says ‘it’s just too soon to assess’ implications of vaccine progress

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Mounting commercial real estate losses threaten banks, recovery

Big changes in downtown property values could cost banks, bondholders. Regulators are raising alarms.

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U.S. Unemployment Claims Slip but Hold at High Levels

Initial claims for unemployment benefits fell by 48,000 to 709,000 last week

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