Jitters Rise Over Commercial Real Estate; Trump Opens Up Huge Lead
Author: Greg Valliere
April 12, 2023
AS WE TRAVEL AROUND THE COUNTRY, it’s difficult to overlook the near-vacant offices, which have not come back to life since the pandemic. On Monday we were in downtown Washington — virtually abandoned. Officials in this city’s commercial real estate industry describe a “crisis.” Says one developer: “The market is dead.”
THE VALUE OF COMMERCIAL REAL ESTATE HAS PLUNGED: The $20 trillion U.S. industry still faces weak demand and falling prices, down 15% in March. Part of the problem is that average occupancy of offices in the U.S. is less than half of March 2020 levels, which has pushed down commercial property valuations, which many experts think will fall by 20-25% this year.
THE BIG COMPLICATING FACTOR is the threat of defaults, as banks raise lending standards. Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City.
ABOUT $270 BILLION in commercial real estate loans held by banks will come due in 2023, according to a recent piece on CNN’s web site. Roughly $80 billion of the loans are in office properties. Is this the next banking crisis?
GROWING JITTERS OVER COMMERCIAL REAL ESTATE may persuade the Fed to wrap up its rate hikes after the May 2-3 FOMC meeting. After seeing empty offices, we think the big issue for the Fed is no longer just inflation — it’s a persistently week demand that is putting real pressure on lenders.
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YOU CAN’T MAKE THIS UP: Within days of his indictment, Donald Trump has jumped into a huge lead for the GOP presidential nomination. A poll issued yesterday by The Morning Consult shows Trump leading Florida Gov. Ron DeSantis by an incredible 33 points, with all other Republicans in single digits — Mike Pence with 7%, Nikki Haley 4% percent, Liz Cheney at 3%. etc.
TRUMP’S NUMBERS AMONG REPUBLICANS MAY EVENTUALLY SLIP, but as of now he’s the prohibitive favorite to win the nomination. He can say just about anything — he said yesterday that people at the New York courthouse were “weeping” last week at the sight of the ex-president being indicted. He plays the role of martyr extraordinarily well.
THIS NEW POLL HAS ONE WARNING FOR TRUMP: He’s only tied with Joe Biden in the general election. Assuming Biden is running (he stumbled through a declaration Monday that he’s planning to), the president would be the slight favorite against Trump for many reasons — including a growing opinion among moderate voters that the GOP has gone too far on abortion and guns.
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