Death Spiral Evidence
This article about "commercial mortgage-backed security" isn't a good sign:
Roughly 23% of CMBS loans tied to Chicago buildings were considered either distressed or delinquent in August — about three times the average of 7.2% across the nation’s top 20 markets — according to an analysis by Kroll Bond Rating Agency released Sept. 11.
The city’s distressed rate surpassed second-place Denver (19.1%), Philadelphia (14.2%) and San Francisco (13.9%) and represented a near doubling of the 12.5% rate KBRA reported for Chicago last June.
KBRA analyzed about $600B in commercial real estate debt nationwide, finding that the level of overall distress has edged up from 4.5% in June 2022 to 6.8% in August. The New York-based credit rating agency attributed the national climb to the Federal Reserve’s 11 interest rate increases since March 2022, “its fastest rate hiking cycle over the past 35 years.”
But Chicago’s leap into the distressed building stratosphere represented more than just difficulty refinancing and was led by its heavy lodging and office exposure, study authors said, per Reuters. A few large loans were marked as delinquent or distressed last month, including a loan with a $400M-plus balance against the Aon Center, a $329M loan backing the Palmer House Hilton and a $388M loan on Prudential Plaza, Reuters reported.
We don't pretend to be experts in the field of finance and banking, but we aren't ignorant of it either. Here's what we understand on a most basic level:
- No one pays for a massive downtown structure all at once. It's spaced out over years. Developers sell office, residential, commercial space (mortgages) at lower entry rates, with the understanding that rates may be adjusted as the leases progress. The building owners have some type of balloon mortgage with large banks or bank consortium.
- As the economy shut down and crime skyrocketed, those leasing the properties attempted to negotiate some reductions in their payments. When those reductions weren't forthcoming (and employees weren't returned to downtown addresses) numerous companies simply walked away from their leases [corrected]. They couldn't pay them, they didn't own the buildings, they took the write-offs and left.
- Now the building owners/operators have giant payments to a bank with no income. The bank consortium has a huge unoccupied asset and no prospect of occupants returning to rescue their bottom lines.
We read that banks are desperately attempting to get these liabilities off of their balance sheets, and there aren't many takers. A commercial real estate crash seems all but inevitable, and with it entire cities, with Chicago leading the race to the bottom.
Any economists out there?
Labels: money questions
posted by SCC at 12:07 AM
44 Comments:
You are witnessing a controlled demolition and destruction of an economic system. Allow and facilitate crime to force people and businesses to leave, drive down real estate valuations, generate less property and sales tax revenue, create inflation through spending in order to devalue currency.
As revenues decrease and property values plummet 50% or more, the Soros clan, Citadel, Blackrock, Vanguard will come in and buy it all up for pennies on the dollar. Pension funds will eventually run out of money because liabilities exceed deposits along with declining asset valuations.
They’ve been planning and scheming this for decades. It’s a feature of the Great Reset, not a flaw. You just happen to be collateral financial damage. But don’t worry, Klaus and the WEF says you’ll own nothing and be happy….and you’ll eat ze bugs too!
Once again, to get a layman’s understanding of the problem, watch the movie Margin Call. It’s a fictional account of the failure at Lehman Bros.
Question?
Second Bullet Point. Do you mean leases, not mortgages? I rent / lease a rental property from the landlord/ owner who has a mortgage.
I also wonder how many current tenants are still paying rent on a lease they already know they will not renew? You keep paying because you have a contract, and they will sue your backside off if you don't pay. Real businesses can't just skip out on their lease like Donnie when he moves out of his apartment and heads off for LA.
IOW. It's going to get worse the next few years.
We're Number One!
We're Number One!
Chicago! The City that (used to) works!
Look through your investments.
Anything say REIT?
That's a Real Estate Investment Trust.
That's not good
The people who own your Chicago Politicians have great plans for Chicago. I don't know if they will actually work though? The plans are to make vast swaths of Chicago, especially the Loop uninhabitable. They buy up the land and building for a dime on the dollar, tell the politicians that they are now suddenly Law And Order (or just replace the stupid OLD corrupt politicians), and begin cleaning up the city. Just like New York after Giuliani, Property Values soar. People come flocking back to the city once it is safe again, and the people who own the politicians make TRILLIONS.
The bad news it needs to get a lot worse, and that will take time. But in another 3-5 years, suddenly "A Renaissance!!!" will start.
“As the economy shut down and crime skyrocketed, those leasing the properties attempted to negotiate some reductions in their payments. When those reductions weren't forthcoming…numerous companies simply walked away from their mortgages.”
“Now the building owners/operators have giant payments to a bank with no income.”
Hmmmmmm…
Ya know, when I was about 5 years old, I was told something about ‘half a loaf…’
The borrower/lender equation's perils.
Trump leveraged this equation, in good faith, and the result was as happy, happy, joy, joy as possible.
Others, not so Trumpish, are now experiencing the not at all happy, happy, joy, joy result of their hubris.
Economics on this equation, the borrower/lender equation, cannot be balanced to the factor of greed.
Thus, the lender finds that the borrower can say, fine, no more juice from me to you, you can take the collateral and choke on it.
Rut Roh........
And more of the tax burden will fall on the homeowners!
The genius politicians in Chicago, who know nothing about economics and finance, have a pipe dream that they'll be able to convert these downtown buildings to residential. Not gonna happe . Great article by banker Ben Sprague that reiterates SCC's observation about the debt storm: https://bensprague.substack.com/p/large-office-buildings-are-being?utm_source=profile&utm_medium=reader2
Here's another death spiral.
Excess Deaths From Cardiovascular Diseases Up 44% Last Year Among UK Citizens Aged 15-44: Report
Using official government data for deaths in England and Wales between 2010 and 2022, former BlackRock portfolio manager Ed Dowd and his partners at Phinance Technologies found that excess death rates from cardiovascular diseases were up 13% in 2020, 30% in 2021, and 44% in 2022, which "point to a worrying picture of an even greater acceleration in coming years of deaths & disabilities."
What's more, they found that "deaths per year from cardiovascular diseases had been trending lower from 2010 to 2019, with a significant downward slope," until 2020, when the trend reversed. They also found that in 2022, men began outpacing women in cardiovascular diseases.
The rise in excess disabilities from UK PIP data was twice the rate of excess deaths in 22 and disabilities are 4x deaths in 22.
Morbidity leads mortality.
From the Buergin Swiss Study for “Myocardial injury after Covid-19 mRNA-1273 booster vaccination” there was an incident rate of 2,800 per 100k. In this age group 15-44 in the UK this represents a TAMFDD (Total Available Market for Future Disability & Death) for just “mild myocarditis” of approximately 650k for ages 15-44. However let’s assume graciously that only 10% will become problematic that represents 65k in this age cohort. Even a TAMFDD of 65k is mind boggling.
https://www.zerohedge.com/medical/excess-deaths-cardiovascular-diseases-44-last-year-among-uk-citizens-aged-15-44
His royal high asses real estate transfer tax should force these property values lower just like higher mortgage rates rob sellers of their investment.
As building owners are unable to lease out their office space eventually they will have to lower the rent and when the mortgage lender sees the rent ain't what it used to be and the fact that the building is collateral for the loan the value of that collateral ain't what it used to be either that is when the shit hits the fan. When that $400 mil building descends to $200 million someone is going to have to cough up some money to the mortgage lender to offset the loss of collateral
Meanwhile...think about the insurance cost of moving a business to a murder/robbery/carjacking capitol
But yet the Chicago, Police Pension board in a sweetheart deal lease a space in a building downtown with the lease price guaranteed for at least another 10 to 15 years going up to hundreds and hundreds of thousands of dollars ripping off the hard-working Chicago police officers there’s another thing that should be looked at. Is somebody getting a kick back on the backs of police officers? With all the crime, tourism going down due to all the crime plus the high taxes buildings are going to be closing rapidly and the mayor county clerk state’s attorney crook county president lt governor all the rest of them that are involved are clueless. Apparently funny how many of the people doing the violent crime, a vast majority are of the same racial make up of the leaders in charge the leaders in charge are definitely not a role model to the other people and in racial class because they are clueless that would be the truth!
It's hard to imagine how much momentum the chicago economy had and how lockdowns were able to cause such damage.
We are being run by Progressives, Progressives only take or destroy, they don't create anything of real value. Casinos and pot shops, things that destroy, are all they are good for. Will legal prostitution be next.
oh wow, maybe mayor BJ can lease some office space for the migrants to live and work at the same time??
bibenomics baby!!! suck it dumbocrats
We have lost some major companies paying nicely easy to find on the net:
TTX's decision underscores a troubling trend of high-profile headquarters losses for Chicago and its surrounding suburbs. Last year major corporations such as Caterpillar, Citadel, Boeing and Tyson Foods announced relocations out of the Chicago area.Jul 14, 2023
They are moving not just from Chicago but from many places look for example at Naperville, that many people say is "the best place to live!" So many empty office buildings, section 8 voted in about 5 years ago ruining that once thriving area the place to go is leave this entire corruption filled state!
I read the comment on the pension board building elections have consequences as we all know be careful who you vote as our pension trustees the pension you save will be your own!
It is a requirement for Democrat office holders to have flunked Econ 101.
To the poster at 06:43:00 AM
You have NO EFFING CLUE! Quit posting. The stockyards, steel and manufacturing are gone. Chicago is a service based economy. It was all predicated on banks, insurance, financial exchanges and other business services coming downtown everyday and spending money. Your government told people to stay home. Now they work at home. No need to come downtown.
Oh, and by the way, the democratic party let the criminals out and won't prosecute them. Well, no one has to go downtown where they don't feel safe and spend money. So it all crashes. And the pensions that invested in downtown properties? Oooooh. Not good.
The folks who actually built this city are dead. The current batch have never built a thing and are destroyers.
whats going on at that Chicago casino. The lines must not be that great judging that there hasn't been any glorious stories in the news since the open and the fact that Bally's stock price is down about 20% since the open.
Prolly should of put all the illegals in there open up the Medina Temple as another shelter
The City That Works.
Illinois watchdog has referred 177 cases of alleged PPP loan fraud by state workers to law enforcement
the office had completed 204 of the 438 investigations it had opened.
To date, the vast majority of the founded cases — 132 — have been among employees at the state Department of Human Services. The agency with the next highest total, the Department of Children and Family Services, had 25 cases.
The Department of Human Services already has been under fire for its handling of allegations of abuse and neglect of residents at the Choate Mental Health and Developmental Center in downstate Anna, leading Pritzker to announce a multiyear “repurposing” plan for the facility.
The governor last week announced he is promoting Human Services Secretary Grace Hou to be one of his deputy governors. She will replace departing Deputy Gov. Sol Flores next month in a position overseeing all of the state’s health and human services agencies and programs. Hou will be paid $310,079 — $171,079 by state taxpayers and another $139,000 from the billionaire governor’s personal fortune.
https://www.chicagotribune.com/politics/ct-illinois-employee-ppp-fraud-20230913-3vhzidbdqjbbdg6rrl6hjzzrke-story.html
The Ghetto came Downtown and Ruined it,River north at Night is a No Go Zone.
Move Downtown or Lincoln Park and you can't go out at Night, The Kia Boys driving around with Glock machine guns is a every night thing.
Orwellian Doublespeak The Chicago Way
Doublespeak is language that deliberately obscures, disguises, distorts, or reverses the meaning of words. Doublespeak may take the form of euphemisms, in which case it is primarily meant to make the truth sound more palatable. It may also refer to intentional ambiguity in language or to actual inversions of meaning. In such cases, doublespeak disguises the nature of the truth.
Covid money honey pot redirection was one example.
CHA HUD land used not for affordable housing but leased to Chicago Fire for a soccer training facility instead. CHA HUD is actually destroying affordable housing
HUD, CHA and the Chicago Fire all declined to comment on the lawsuit. The team issued a statement about the overall project, saying, in part, that the team has been "highly engaged with residents and key stakeholders on the Near West Side to ensure the performance center has a positive impact on the community."
"We were not asked about it. We were promised housing, and we're still waiting for housing," said Laura Donaldson, who was an ABLA Homes resident.
The coalition said when the original site was demolished, the CHA promised to replace many of the 3,500 units. So, far only 245 have been created.
https://abc7chicago.com/affordable-housing-chicago-fire-authority-cha/13740308/
You are witnessing a controlled demolition and destruction of an economic system. Allow and facilitate crime to force people and businesses to leave, drive down real estate valuations, generate less property and sales tax revenue, create inflation through spending in order to devalue currency.
It’s so refreshing reading this & knowing someone else gets it.
Chicago received over 32 buses of illegal immigrants IN ONE WEEK and all the national MSM headlines want to talk about is that bus #20 of illegals just arrived in LA
Yep, let Brandon's young rascals run loose in Chicago.
They're just out enjoying their nightlife.
This is domestic version of Confessions Of An Economic Hit Man by John Perkins. The old big money (Crowns, Pritzkers) expertly orchestrates and plays the long game. They will get Chicago version of Boardwalk, Park Place and anything else they want for pennies on the dollar.
Wrigley Field would be a nice spot to put up the illegals "Winterised Base Tent Camp" wouldn't it? Bathrooms are there, Showers are there. Food service is there. The Beer Man is there. Parking and room for more Mexico-Chicago shuttle buses. Everything is there and nothing else going on over the winter all they need are the tents and firewood for the campfires
Site #2 Soldiers Field same.
As a citizen who relies on our laws & CPD for public safety I am in tears & tramatized for Officer's facing the reality of a commercial real estate collapse - with Chicago leading the race. Our good citizens safety at great risk for twisted, horrific crimes.
Bottom line .... destiny/fate is how we all got here doing what we do. So great to pull the plug and vacate but for those of us who may still try to survive through this next "new normal" ... here is a version of a purple heart filled with bravery. Or roll the dice to next, best new residency and read about the disaster online.
Those who do disembark tend to be focused on nurturing their young adults to be the strong, crative new LEADER's we need to re-crate a good quality of life for people for the time being.
Eveyone continues to work through this "mess" for the body politic as a whole. No Exit. no one.
With all the illegals crossing the border, Chicago will be home to a poor non-white population. When that occurs, the city and its property values will decline as no one with money will invest, visit or work in that environment. Sadly the city will decline faster than Detroit or even Flint, Michigan. There will be no renaissance in the future, just more of the same.
I think that’s a death spiral for the city. This will be a death spiral for everything else playing with Putin a man with balls not too smart we have a leaderless ship no Rudder:
https://www.the-sun.com/news/9223083/putins-ally-world-war-3-uk-troops/
Lightfoot's plan -- turning LaSalle Street into Section 8 housing -- will certainly accelerate the decline.
Meanwhile...think about the insurance cost of moving a business to a murder/robbery/carjacking capitol
10/02/2023 05:39:00 AM
-----
And good luck recruiting employees.
City Officials raise illegals cost from $300 Million to $345M just for rest of year
What will happen when fake mayor BJ Johson says taxes will go up to pay for illegals in Chicago ? .... While CPD is 1,900 short under headcount from 2019
Total shit show courtesy of demoratic party and the socialists that are in power ghetto mutts running rampant with no accountability for their actions
"As building owners are unable to lease out their office space eventually they will have to lower the rent and when the mortgage lender sees the rent ain't what it used to be and the fact that the building is collateral for the loan the value of that collateral ain't what it used to be either that is when the shit hits the fan. When that $400 mil building descends to $200 million someone is going to have to cough up some money to the mortgage lender to offset the loss of collateral
10/02/2023 05:39:00 AM"
The lender say: uhhh, we gonna need you ta put up more collateral on dis here loan, buddy....
The borrower say: no can do, buckaroo.....
The lender say: well then, we gonna haf to foreclose on ya, pal....
The borrower say: knock yourself out, amigo.....
The lender say: huh.....?
Vacancies will be filled by weed shops
Converting downtown buildings to residential makes me think of the good old days when Daley built the nice affordable high rise buildings that soon became known as The projects. Its Déjà vu.
Try to explain the situation to BJ and you’ll get the deer in the headlights look with him only thinking about his next photo-op.
No renters, no money,no mortgage payment. The riots killed it,when people saw police ordered to stand down they understood it wasn't safe, work from home was baked in...
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