Commercial Real Estate in Trouble and Other Problems of US

Commercial Real Estate in Trouble and Other Problems of US

Commercial real estate is in trouble. Moreover, turbulence in the $15 trillion markets threatens to bleed over into the broader financial system. The United States has difficulties to emerge from a recession.

The pandemic paralyzes office buildings, hotels, and retailers. Thus, it is difficult it is for property owners to meet their mortgage payments. Thus, it raises the specter of eventual foreclosures, widespread downgrades, and defaults.

Meanwhile, hotels run below fifty percent occupancy—companies like Pier 1, Neiman Marcus, and J.C Penney file for bankruptcy. Furthermore, retail properties lose major tenants with no clear plan to replace them.

Seven months into the crisis, the Federal Reserve has been in vain and the industry’s pleas for relief to Congress. Lawmakers are unclear concerning the most basic details of an economic relief package for individuals, let alone businesses. The Federal Reserve is leery of taking on more risk and hopes the trillion-dollar market for securities backed by commercial mortgages will heal itself.

Also, there is a chance that directing significant relief to the industry will be a handout to the president’s friends. It is because Donald Trump made his fortune in commercial real estate. That is what one lobbyist said. S/he feels frustrated with the lack of traction the issue is getting with policymakers.

Real Estate

Mike Flood works at the Mortgage Bankers Association. He is the senior vice president of commercial and multifamily policy. He said that sometimes people forget the breadth and depth of what commercial real estate is. Here at risk is the ability for people to go to their jobs and people’s ability to stay in their apartments. Thus, there is a lot less to go back to once they get back to regular times unless there is a stimulus.

The main problem is that no one knows how long the drop in commercial real estate will last. Business travel will not get back in shape for at least a year. Thus, hotels are being hammered. Yet, office buildings have not felt the brunt of the downturn. Offices tend to have long leases. Therefore, many companies rethink the way they will operate as work from home becomes the new normal.

Unfortunately, the virus will continue to cut revenue for some time. Thus, the loss of paying tenants will touch off a wave of eventual foreclosures and property write-downs. The situation is challenging in the United States.

Everyone is waiting for the presidential elections. It will take place in November.

Let us wait and see who will win.