Financial operators may soon face a harsh reality as the commercial real estate crisis threatens the profits of America’s largest banks. A number of reports show that banks with a large amount of commercial real estate in their portfolios may see significant effects in the next few months.
Most recently, PWC’s real estate practice published a report called “New Trends in 2021,” which shows that urban ranks have changed significantly since the outbreak of the coronavirus. For example, for several years the city of Seattle was in the top ten in the ranking of real estate investments, but after Covid-19, it fell to number 34 in terms of ratings with other American cities.
One of the biggest problems facing major cities such as Seattle, Boston, New York, Los Angeles, Atlanta and many other cities is the growing loss of commercial real estate (CRE) that is looming on the horizon.
For example, on November 11, 2020, columnist David J. Lynch published an article on how the current CRE market should scare financial institutions like banks. The editorial explains how the Bank’s Manhattan Bank’s signature profits in the third quarter showed “60 percent of its commercial real estate portfolio.”
Lynch went on to explain that lending money to companies such as hotels, landlords and local shops was something that banks could count on, but in cities like New York, those places are now a “ghost town.”
The signature bank suffers badly from the consequences, as Lynch points out:
The write-offs of the bank’s bad loans, although still modest, are getting higher. Despite years of steady gains, investors have punished stocks that lost 27% of their value this year, even after a recent recovery.
In essence, commercial real estate or CRE is a type of property that is used only for business purposes. An extremely large proportion of the world’s CRE is rented to those who generate income, but due to Covid-19 and the government’s response to the virus, some people who hire a CRE cannot generate income.
The CRE crisis that is brewing in the United States is happening in almost every state in the nation. On November 16, 2020, Jdsupra published a report covering Delaware and the dire consequences of Covid-19’s reaction to tenants and landlords of commercial real estate.
“The real estate industry in Delaware has undergone dramatic changes over the past eight months as a result of the Covid-19 pandemic – without a regular flow of revenue, many commercial tenants are unable to meet their monthly leases,” wrote John Newcomer Jdsupra. “Faced with reduced monthly rental income, some landlords remain in cash deficit, which affects their ability to make mortgage payments to their banks.”
Meanwhile, the federal ban on evictions, which came into force by the CDC, will be lifted at the end of the year, and skeptics believe it could spark a wave of crime. Local authorities in heavily affected CRE markets such as New York and California are trying to limit the effects by adding additional provisions.
For example, California will continue to limit annual property tax increases for CRE markets. In addition, analysts say that no matter who is in office in January, no US president will be able to influence the return of the CRE. According to a recent Cushman & Wakefield report, the decline in real estate has been driven by intense recessions, regardless of which political party is responsible for the United States.
“Instead of elections,” the Cushman & Wakefield report emphasizes, “the real estate cycle, the economy, interest rates, COVID-19, geopolitical developments and long-term growth drivers (such as demographics and technological change) are areas where focus on determining the basis of the lease and the value of the property. “
Meanwhile, in addition to CRE and residential real estate, investment assets gold and bitcoins have seen various price changes in recent days. For example, following the announcement of the Moderna vaccine on Monday, spot gold prices fell 0.40% and one ounce of fine gold traded at $ 1,888 per piece. Gold also fell in value when Pfizer announced a vaccine for Covid-19, but cryptocurrency markets did just the opposite.
For example, after the announcement of the Moderna vaccine, bitcoin (BTC) reached a maximum of $ 16,850 on the Bitstamp exchange, which rose 5.6%. Ethereum prices jumped 3.39% on Monday, reaching a high of $ 464 during the afternoon trading sessions on Monday. The entire crypto market economy is still approaching half a trillion dollars at 464 billion dollars, up 2.6% on Monday.
What do you think about the impending commercial real estate crisis in the United States? Tell us what you think about this in the comments section below.
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