Fire Sale!
"Invitation Homes, the largest publicly-traded holder of single-family properties, reported that it disposed of slightly more single-family properties than it acquired last quarter, and that most of the small number of properties it acquired last quarter were from “builder partners.”"
https://calculatedrisk.substack.com/p/lawler-invitation-homes-net-seller?utm_source=post-email-title&publication_id=443155&post_id=118857297&isFreemail=false&utm_medium=email
I'm going to stomp my little feet!
A group of lawmakers, including Sen. Elizabeth Warren and Rep. Pramila Jayapal, urged the Fed to halt its rate hikes. The request came the day before the Fed is expected to raise its benchmark rate by a quarter of a point.
https://www.cnbc.com/2023/05/02/warren-jayapal-urge-fed-to-stop-raising-rates.html#:~:text=A group of lawmakers%2C including,a quarter of a point.
PacWest Bancorp, $PACW, now down 29%, stock halted. Western Alliance Bank, $WAL, now down 25%, stock halted. Metropolitan Bank, $MCB, now down 24%, stock halted.
Triggered:
The Vancouver Sun in Canada. “Over the last year, the Duecks’ mortgage payments nearly doubled, increasing by $2,600 a month. The Duecks are far from alone. When borrowing rates fell to record lows in recent years, about three out of every five Canadian mortgage holders chose variable rates, up from the typical average of about one-third, said Brendon Ogmundson, the chief economist with the B.C. Real Estate Association.”
A ‘trigger clause’ is hit when the static monthly payment isn’t high enough to cover rising interest costs, and then the borrower has to start paying more or stretch out the amortization of the mortgage.”
‘No one ever paid attention to (the trigger clause) because it was ‘when pigs fly’, he said. ‘Well, pigs flew last year.'”
The tax base:
Omaha WOWT in Nebraska. “Vacant lots and high-interest rates hurt more than just the property owners. They could hurt everyone that benefits from county programs. ‘We have one source of revenue, and it’s property taxes,’ said Douglas County Commissioner PJ Morgan. Morgan pointed to 90th and Dodge as an area of concern. ‘You’ll see that almost every building has ‘for lease’ signs on it,’ he said. ‘There are floors in Regency that have been vacant for two to three years.'”
F U Pay me:
From Bisnow. “Lenders are getting impatient. Check-in desks and rooms need a tuneup. These are the kinds of challenges coming to a head in the hotel landscape that are expected to help thaw the recent freeze in the industry’s financing markets, several executives said. ‘The lender is saying ‘I’ve extended you for the last three years, you gotta pay me.’ Brands are saying ‘you haven’t reinvested in your assets, you’ve gotta do that.’ You can’t just keep kicking the can,’ said Peachtree Group Chief Investment Officer Brian Waldman.”
This is going to get worse and worse as digital bidding on distressed residential property gets easier and easier especially on high end residential properties.
U.S. regulators tackle money laundering in the luxury home market
https://legal.thomsonreuters.com/en/insights/articles/u-s-regulators-tackle-money-laundering-luxury-home-market
Is that a lot?
NYU Stern School of Business
Interest rate risk beyond MBS: The estimated losses on securities are only part of the total unrealized losses banks suffered from the rise in interest rates. Loans, like securities, also lose value when interest rates go up. Total loans plus securities as of December 2022 was $17.5 trillion. Applying the average duration of loans and securities (3.9 years), the total unrealized losses on total bank credit as of December 2022 is $17.5 × 3.9 × 2.5% = $1.7 trillion. This is only slightly less than total bank equity capital of $2.1 trillion in 2022. Hence, the losses from the interest rate increase are comparable to the total equity in the entire banking system.
https://pages.stern.nyu.edu/~pschnabl/research/DSS_SVB.pdf
“In San Francisco, the office vacancy rate ‘is about 30 percent, or about 35 million square feet that is not currently being used,’ Colin Yasukochi with commercial real estate firm CBRE told NBC News Bay Area. ‘And that’s the highest that we’ve ever seen in San Francisco.’ A former San Francisco WeWork building has seen its property value slashed by about 66 percent, according to Trepp, which tracks CRE data. The building at 25 Taylor Street was once almost entirely leased to WeWork, the formerly highflying co-work startup. The building was valued at $28.1 million in 2014, but was recently appraised at $9.5 million, according to Trepp.”
April 28 – Reuters (David Milliken): “The Bank of England estimated… its quantitative easing programme would rack up a total financial loss of around 100 billion pounds ($125bn) by 2033, which will need to be funded by the government. In the short term, the BoE expects the government will need to pay it almost 30 billion pounds a year…”
April 26 – Financial Times (Eric Platt, Sujeet Indap and Harriet Clarfelt): “When a debt-laden company gets into financial distress, the fights between creditors are often ugly, but investors in leveraged loans could usually watch from the sidelines while more junior claimants haggled over what they would be repaid. Not any more. A recent court decision threatens to escalate creditor-on-creditor violence in a normally sedate $1.4tn corner of the financial markets that is critical to funding big private equity deals and the operations of lowly-rated businesses. The ruling, in the Texas bankruptcy case of Serta Simmons, blessed a controversial 2020 debt swap that only a slim majority of the mattress maker’s senior lenders had approved. Other holders of the company’s loans… were pushed further back in the queue to be repaid and the value of the loans they held crashed when Serta ultimately went bust.”
April 27 – Wall Street Journal (Peter Grant and Jim Carlton): “Before the pandemic, San Francisco’s California Street was home to some of the world’s most valuable commercial real estate. The corridor runs through the heart of the city’s financial district and is lined with offices for banks and other companies that help fuel the global tech economy. One building, a 22-story glass and stone tower at 350 California Street, was worth around $300 million in 2019, according to office broker estimates. That building now is for sale, with bids due soon. They are expected to come in at about $60 million… That’s an 80% decline in value in just four years. This is how dire things have become in San Francisco, an extreme form of a challenge nationwide.”
Stress Builds as Office Building Owners and Lenders Haggle Over Debt
The health of banks and cities and the nation’s economy could hinge on high-stakes negotiations over commercial real estate loans.
https://www.nytimes.com/2023/04/27/business/economy/office-buildings-banks-economy.html?smid=nytcore-ios-share&referringSource=articleShare
This is going to get super-expensive for the banks to cover. They probably need a new financial transaction tax to fund the FDIC. Tax overnight repos?
It will be "interesting" to see the downstream effects of this resolution.
Perfectly normal:
FDIC to place First Republic under receivership
https://www.reuters.com/business/finance/first-republic-shares-gain-hopes-rescue-deal-2023-04-28/
