One Bubble Is About to Pop...and No One Is Talking About It

[Kamaji]

One Bubble Is About to Pop...and No One Is Talking About It

Matt Vespa
July 12, 2023

The Biden administration, the media, Democrats, and Republicans are all either willfully ignorant or blithely unaware of the looming economic crisis that's about to hit. Inflation is part of the problem, but we're going beyond job creation reports and the fallout from Silicon Valley Bank. It's a crisis that could cause all the dominoes to fall, and it doesn't help that we have a president who gets outright exhausted after a few days of work. A looming real estate crisis threatens to nuke the whole system. The bleeding has already begun, and it could take decades for some "superstar cities" to recover, while some will tragically remain lost in the wilderness.

Office space and commercial real estate have become the Achilles heel of the economy, made even more vulnerable thanks to the COVID pandemic. Working from home exposed some companies to the benefits of not having an office, leading to cost-saving decisions to cut overhead costs. J.P. Morgan thought its office culture would return to normal once the COVID Nazis allowed us to go outside. Instead, he's cutting his New York footprint.

In June, Dror Poleg had a lengthy piece in The Atlantic that gave an apocalyptic economic projection, breaking down this pending crisis where banks and cities are about to endure a brutal blow to their balance sheets. With interest rates rising, landlords big and small are looking to turn their keys over to the bank in strategic foreclosure. Poleg, a financial investor and author who concentrates on technology's impact on urban economies, even quotes John Maynard Keynes regarding this trend: if you owe the bank $1,000, you're at their mercy, but if you owe them $1 million, the roles are reversed.

You see that in San Francisco, where downtown property values have plummeted by hundreds of millions of dollars. The owners of the Westfield San Francisco Centre shopping center gave their vote of confidence regarding a potential Bay Area comeback: they left. Seeing a $558 million mortgage on their books, they opted to give up the property to the bank. And they're not the only ones; there's a retail exodus occurring in the city.

*  *  *

Source:  https://townhall.com/tipsheet/mattvespa/2023/07/12/the-one-crisis-the-biden-administration-is-ignoring-at-their-peril-n2625623

[Free Vulcan]

I agree. Urban centers and metropolises in general are becoming more and more radioactive, and downright unnecessary, which all translates to loss of tax base and a hard crash of the money train.

[Kamaji]

I agree. Urban centers and metropolises in general are becoming more and more radioactive, and downright unnecessary, which all translates to loss of tax base and a hard crash of the money train.

It's going to be interesting when it starts to get real.

The big reason why this didn't immediately become a problem in 2020 is that most commercial leases for even small firms are 10 to 15 years or more, and the consequences to a firm of breaking a commercial lease can be pretty dire, so most firms stuck with their leased office space even though they were only using 50% or less of the actual space on any given day due to remote work.

Those leases are now beginning to expire, and I suspect that many will not be renewed, and that the firms will either leave the city entirely or, more likely, rent significantly smaller spaces than they had before.

All of which means that the older buildings are in dire danger of going bankrupt.

[libertybele]

??  Interesting.  Around here they are building the first 'town center' which will have shops, restaurants, offices and apartments and a second one slated for the other side of town.