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“For Lease”: The commercial real estate apocalypse in photos

May 19, 2020

“The disaster unfolding on main street America will be devastating”


In early 2017, we first reported a bearish trade emerged which quickly gained popularity in the investment community, and was dubbed “The Next Big Short.” At the time, only a few bearish funds were positioned for a “retail apocalypse” that could spur a wave of defaults.

Fast forward to today, coronavirus outbreak, and the ensuing lockdown, has essentially frozen the commercial real estate market. Buildings that were once used for restaurants, offices, hotels, spas, and or anything else that is classified non-essential have seen soaring vacancies.

This is single handily sending the commercial property market into chaos. As vacancies soar, tremendous downward pressure is being put on almost every asset class tied to commercial real estate.

The latest TREPP remittance data compiled by Morgan Stanley showed a quarter of all commercial mortgage-backed securities (CMBS) could be on the verge of default. CMBS delinquencies surged to a new high in April as lockdowns continued:

With retail in disaster, a deluge of CMBS defaults is on the horizon. Shown below, the value of commercial mortgage-backed securities (CMBX Series 6 BBB- tranche) is collapsing …

For more color on the collapse, created a “subthread showing the economic devastation down here in the Lighthouse Point to Delray Beach area on a main commerce/travel route …” It appears MCM recently drove up and down a stretch of highway in South Florida, an area of great wealth, and said, “three months ago one could count “For Lease” signs on this whole route on a few hands,” which now appears to have significantly multiplied during lockdowns.

Stretch of highway MCM traveled

“Here are pictures of many (probably most of the “For Lease” signs as of yesterday … remember there used to be very few just months ago … each one of these comes with tragedy before it imo and needs a VERY CREDIT WORTHY NEW TENANT willing to make a big/long-term commitment,” tweeted.

“For Lease” signs along a stretch of South Florida highway

In a series of tweets, here is what MCM said about the current situation of the commercial real estate market in South Florida and the local economy:

And perhaps MCM is correct, as we’ve explained before, a recovery back to 2019 levels could take several years.

Not to mention, Scott Minerd, the chief investment officer of Guggenheim Investments, believes it could take upwards of “four years” for a recovery to take place adding that “to think that the economy is going to reaccelerate in the third quarter in a V-shaped recovery to the level where the gross domestic product (GDP) was prior to the pandemic is unrealistic.”

The disaster unfolding on main street America will be devastating.


From → World Watch

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