Fed Sounds Alarm on Commercial Real Estate, Business Bankruptcy

[marmar]

(Bloomberg) The Federal Reserve warned of significant risks of business bankruptcies and steep drops in commercial real estate prices in a report published on Friday.

“Business leverage now stands near historical highs,” the central bank said in its semi-annual Monetary Policy Report to Congress. “Insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.”

In part encouraged by government and Fed programs, businesses have taken on more debt over the past year as they’ve struggled to deal with the economic and financial fall-out from Covid-19, including in some cases forced shutdowns. ..............(more)

https://www.bloomberg.com/news/articles/2021-02-19/fed-sounds-alarm-on-commercial-real-estate-business-bankruptcy?srnd=fixed-income

[Wellstone ruled]

1. Golly gee whiz,you think.

Going to be in the Trillions.

[empedocles]

2. Commercial, Private Debt, are more vulnerable to disaster.

The Next Economic Disaster
In this illuminating and provocative work, Richard Vague argues that the rapid expansion of private debt—rather than public spending—is what constrains economic growth and triggers economic calamities like the financial crisis of 2008.

University of Pennsylvania Press, 2014

[There is a ton of private debt, good for CEO types, out there].

[Wellstone ruled]

5. Kind of old data ,

needs to be updated with the Covid Reality. Something from my Experience doing B to B vendor sales. Did a back of the envelope calculations of my old Sales and service area,coupled with a few phone calls to old Account Contacts. Bottom line,80% were remote Zoom operating. Some require each worker to do a onsite skill building or skill set refresher on a scheduled basis. Many are going to stay with remote work schedules after the Covid all Clear is given.

Couple of me Contacts have said,they are giving up their Office Leases rather than renew and downsize their foot print to a minimal or Consolidate to a Regional Foot print keeping their Employees and Sales Personnel .

Just a small sample that I found very insightful. If memory is still working,that would effect four fifteen floor class A properties.

[empedocles]

6. From a micro perspective I agree with what you are saying. Zoom effect hits. The pandemic/endemic

will shrink sectors - for a long time perhaps.

My perspective, is perhaps more clear from the 'debt amok' post below in the thread. Debt is still increasing, 2020 - not necessarily healthy.

[Wellstone ruled]

7. Most of our Family works

remote and don't ever expect to be Cube Rats again. Only one has to be physically on site,and that comes because of Retail Merchandising.

[jimfields33]

4. I agree.

Who would have thunk this would happen when you shut down the economy for a year and could be longer. I think everyone could easily figure this out.

[empedocles]

3. Debt amok

Matthew Goldstein
By Matthew Goldstein
Feb. 19, 2021, 8:49 a.m. ET
The initial public offering of Apria Healthcare last week was a $170 million boon to Blackstone Group, the private equity firm that is Apria’s majority owner.

But as lucrative as that payday was, it wasn’t as good as the one Blackstone extracted from the company just a few weeks earlier: about $200 million in dividends, paid with borrowed cash.

The practice has a divisive history — Hertz and Payless, the shoe retailer, are just two of the companies that recently faltered after their private equity owners heaped debt on them while pulling out cash. Now dividend payouts are booming again.

https://www.nytimes.com/2021/02/19/business/private-equity-dividend-loans.html?action=click&module=News&pgtype=Homepage