Rebel Capitalist: Next Phase of the Commercial Real Estate Crash Is Here
Commercial real estate has struggled in recent years. First, retail spaces saw a decline in demand as buying shifted online. But the pandemic led to a structural change in how people live and work.
That caused a massive reduction in demand for office properties. So far this year, several office buildings have traded hands as much as 90% lower than their last sale price. And since commercial real estate has significant debts behind it, there could be further dangers.
One sign that commercial real estate’s trouble is getting worse is the rise in fraud. Building owners are overstating financials and looking to obtain larger loans than their properties can support.
This practice is reminiscent of the so-called “liar loans” that occurred in the housing market in the mid-2000s. Essentially, loans were passed without going through the due diligence of determining the creditworthiness of the borrower.
While the commercial real estate market is smaller than the housing market, a decline poses some risks. Many debts related to commercial holdings could collapse. Or at least come under severe scrutiny.
As further fire sales are made, more risks could be exposed. And that could lead to systemic problems in the credit markets. Real estate-related stocks should be examined exceptionally closely right now.