Is CRE the Next Big Challenge for Banks?

:root {–wt-primary-color: #5f22d8;–wt-text-on-primary-color: #FFFFFF;–wt-secondary-color: #F9FAFB;–wt-text-on-secondary-color: #030712;–wt-tertiary-color: #FFFFFF;–wt-text-on-tertiary-color: #222222;–wt-background-color: #FFFFFF;–wt-text-on-background-color: #222222;–wt-subscribe-background-color: #ffffff;–wt-text-on-subscribe-background-color: #222222;–wt-header-font: “Helvetica”, ui-sans-serif, system-ui, -apple-system, BlinkMacSystemFont, “Segoe UI”, Roboto,”Helvetica Neue”, Arial, “Noto Sans”, sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”, “Noto Color Emoji”;–wt-body-font: “Open Sans”, ui-sans-serif, system-ui, -apple-system, BlinkMacSystemFont, “Segoe UI”, Roboto, “Helvetica Neue”, Arial, “Noto Sans”, sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”, “Noto Color Emoji”;–wt-button-font: “Open Sans”, ui-sans-serif, system-ui, -apple-system, BlinkMacSystemFont, “Segoe UI”, Roboto, “Helvetica Neue”, Arial, “Noto Sans”, sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”, “Noto Color Emoji”;–wt-border-radius: 8px}.bg-wt-primary { background-color: var(–wt-primary-color); }.text-wt-primary { color: var(–wt-primary-color); }.border-wt-primary { border-color: var(–wt-primary-color); }.bg-wt-text-on-primary { background-color: var(–wt-text-on-primary-color); }.text-wt-text-on-primary { color: var(–wt-text-on-primary-color); }.border-wt-text-on-primary { border-color: var(–wt-text-on-primary-color); }.bg-wt-secondary { background-color: var(–wt-secondary-color); }.text-wt-secondary { color: var(–wt-secondary-color); }.border-wt-secondary { border-color: var(–wt-secondary-color); }.bg-wt-text-on-secondary { background-color: var(–wt-text-on-secondary-color); }.text-wt-text-on-secondary { color: var(–wt-text-on-secondary-color); }.border-wt-text-on-secondary { border-color: var(–wt-text-on-secondary-color); }.bg-wt-tertiary { background-color: var(–wt-tertiary-color); }.text-wt-tertiary { color: var(–wt-tertiary-color); }.border-wt-tertiary { border-color: var(–wt-tertiary-color); }.bg-wt-text-on-tertiary { background-color: var(–wt-text-on-tertiary-color); }.text-wt-text-on-tertiary { color: var(–wt-text-on-tertiary-color); }.border-wt-text-on-tertiary { border-color: var(–wt-text-on-tertiary-color); }.bg-wt-background { background-color: var(–wt-background-color); }.text-wt-background { color: var(–wt-background-color); }.border-wt-background { border-color: var(–wt-background-color); }.bg-wt-text-on-background { background-color: var(–wt-text-on-background-color); }.text-wt-text-on-background { color: var(–wt-text-on-background-color); }.border-wt-text-on-background { border-color: var(–wt-text-on-background-color); }.bg-wt-subscribe-background { background-color: var(–wt-subscribe-background-color); }.text-wt-subscribe-background { color: var(–wt-subscribe-background-color); }.border-wt-subscribe-background { border-color: var(–wt-subscribe-background-color); }.bg-wt-text-on-subscribe-background { background-color: var(–wt-text-on-subscribe-background-color); }.text-wt-text-on-subscribe-background { color: var(–wt-text-on-subscribe-background-color); }.border-wt-text-on-subscribe-background { border-color: var(–wt-text-on-subscribe-background-color); }.rounded-wt { border-radius: var(–wt-border-radius); }.wt-header-font { font-family: var(–wt-header-font); }.wt-body-font { font-family: var(–wt-body-font); }.wt-button-font { font-family: var(–wt-button-font); }input:focus { –tw-ring-color: transparent !important; }li a { word-break: break-word; }@media only screen and (max-width:667px) {.mob-stack {display: block !important;width: 100% !important;}.mob-w-full {width: 100% !important;}}@font-face {font-family: ‘Open Sans’;font-style: normal;font-weight: 400;src: url(‘https://fonts.gstatic.com/s/opensans/v28/memvYaGs126MiZpBA-UvWbX2vVnXBbObj2OVTS-mu0SC55I.woff2’) format(‘woff2’);}@font-face {font-family: ‘Open Sans’;font-style: normal;font-weight: 700;src: url(‘https://fonts.gstatic.com/s/opensans/v28/memvYaGs126MiZpBA-UvWbX2vVnXBbObj2OVTS-mu0SC55I.woff2’) format(‘woff2’);}@font-face {font-family: ‘Open Sans’;font-style: italic;font-weight: 400;src: url(‘https://fonts.gstatic.com/s/opensans/v28/memtYaGs126MiZpBA-UFUIcVXSCEkx2cmqvXlWqWuU6FxZCJgg.woff2’) format(‘woff2’);}@font-face {font-family: ‘Open Sans’;font-style: italic;font-weight: 700;src: url(‘https://fonts.gstatic.com/s/opensans/v28/memtYaGs126MiZpBA-UFUIcVXSCEkx2cmqvXlWqWuU6FxZCJgg.woff2’) format(‘woff2′);}.table-base, .table-c, .table-h { border: 1px solid #C0C0C0; }.table-c { padding:5px; background-color:#FFFFFF; }.table-c p { color: #2D2D2D; font-family:’Helvetica’,Arial,sans-serif !important; overflow-wrap: break-word; }.table-h { padding:5px; background-color:#F1F1F1; }.table-h p { color: #2A2A2A; font-family:’Trebuchet MS’,’Lucida Grande’,Tahoma,sans-serif !important; overflow-wrap: break-word; }

.bh__byline_wrapper {font-size: .875rem;line-height: 1.25rem;vertical-align: middle;justify-content: space-between;display: block;}.bh__byline_social_wrapper {display: flex;margin-top: 0.5rem;align-items: center;}.bh__byline_social_wrapper > * + * {margin-left: 1rem;}@media (min-width: 768px) {.bh__byline_wrapper {display: flex;}.bh__byline_social_wrapper {margin-top: 0rem;}}

p span[style*=”font-size”] { line-height: 1.6; }

TOGETHER WITH

p span[style*=”font-size”] { line-height: 1.6; }

Good morning. With increasing commercial property loan defaults, market participants are becoming increasingly concerned about the banking industry’s susceptibility to the commercial real estate sector.

p span[style*=”font-size”] { line-height: 1.6; }

Today’s edition is brought to you by AirGarage, the simple full-stack solution for parking lot owners to boost their revenue.

p span[style*=”font-size”] { line-height: 1.6; }

⏱️ Read time: ± 5 minutes

LOOMING CRISIS

How Commercial Real Estate is Emerging as the Next Big Threat to Banking

p span[style*=”font-size”] { line-height: 1.6; }

While the collapse of Silicon Valley and Signature Bank may be giving investors a bad case of the jitters, wait until they see the banking industry’s exposure to the rapidly weakening commercial real estate industry.

p span[style*=”font-size”] { line-height: 1.6; }

Growing trend: CRE has recently seen a string of defaults, including one by an office landlord controlled by Pacific Investment Management Co. for $1.7B and a default by a Brookfield Corp. business (BN) on loans tied to two LA office towers. A San Francisco complex co-owned by former President Donald Trump and Vornado Realty Trust (VNO) is also at risk of default.

p span[style*=”font-size”] { line-height: 1.6; }

Banking exposure: If Silicon Valley Bank’s situation triggers a recession, it could result in a surge of property defaults, which is concerning for lenders who have increased their real estate financing. Since mid-2021, real estate loans and leases on lenders’ books have shot up 16%, or $725B, to a record $5.31T, according to the Federal Reserve.

The commercial real estate sector now makes up almost 24% of all bank loans, the most since the financial crisis, and offloading the risk to investors has become more difficult.

p span[style*=”font-size”] { line-height: 1.6; }

Risky business: The risk for banks is concentrated mostly at small banks and some large lenders specializing in real estate. In the 2022 stress tests conducted by the Fed, Wells Fargo & Co. (WFC) had the biggest dollar value CRE losses, while M&T Bank Corp. (MTB) and Huntington Bancshares Inc. (HBAN) had the biggest losses in terms of total loan losses and their capital bases.

p span[style*=”font-size”] { line-height: 1.6; }

The good news: Lenders have tightened CRE credit standards, with 57.6% reporting tightening in the most recent Fed survey. However, standards have significantly loosened after the pandemic, which may also cause concern.

➥ THE TAKEAWAY

p span[style*=”font-size”] { line-height: 1.6; }

Is it too late? The recent issues in CRE raise concerns about the possibility of a banking crisis similar to the savings and loan crisis of the late ‘80s and early ‘90s. The current state of the banking system is uncertain, and the recent problems at SVB and Signature Bank indicate things are not always what they seem. Needless to say, a healthy banking system is essential for a healthy U.S. economy.

TOGETHER WITH AIRGARAGE

Are Legacy Parking Operations Hurting Your Bottomline?

p span[style*=”font-size”] { line-height: 1.6; }

Increase your property’s net operating income with AirGarage’s full service parking management.

p span[style*=”font-size”] { line-height: 1.6; }

Legacy parking companies rely on manual labor and expensive third party hardware & software products to manage their facilities. This increases their operating expenses and hurts property owners’ bottom line.

p span[style*=”font-size”] { line-height: 1.6; }

AirGarage is a vertically integrated parking management and technology solution that maximizes your income by increasing traffic, optimizing revenue per vehicle, and decreasing operating expenses.

p span[style*=”font-size”] { line-height: 1.6; }

The average property owner that switches to AirGarage from a legacy parking operator sees a 23% NOI increase in the first year.

p span[style*=”font-size”] { line-height: 1.6; }

Talk to AirGarage today and let us show you how we can increase your NOI with a custom proposal for your parking facility.

🌐 Around the Web

p span[style*=”font-size”] { line-height: 1.6; }

📖 Read about the broker who brought Starbucks (SBUX) to NYC in 1994.

p span[style*=”font-size”] { line-height: 1.6; }

🖥️ Watch Marcus & Millichap (MMI) CEO discuss the future and success of necessity retail spaces.

p span[style*=”font-size”] { line-height: 1.6; }

🎧 Listen to Azor Advisory Services CEO discuss retail leases and impulse vs. destination tenants on The FORT with Chris Powers.

✍️ Daily Picks

Staying strong: NYC’s industrial market stayed strong in Q4. Net absorption increased 9% YoY while asking rents rose more than 24%.
A new perspective: When the stocks and bonds that make up a 60/40 portfolio perform poorly, maybe it’s time to take ‘alternative’ private market investing more seriously.
Consulting an expert: Twitter strip mall savant StripMallGuy details his CRE investing strategy and the appeal of strip malls in an interview with The Real Deal.
Keeping an eye on things: A number of U.S. senators are maintaining pressure on the DOJ to scrutinize the rent-setting algorithms used by RealPage.
Staying put: There are roughly 3M U.S. households earning $150K+ while still renting. The biggest obstacle to home ownership? High costs and low supply.
Not getting away with it: CRE investor Raheel Bhai has pled guilty to a count of wire fraud and forging nearly 75 documents to receive a $149M loan from Benefit Street Partners.
Goodbye, brick and mortar: Amazon (AMZN) will be closing 8 of its cashier-free ‘Go’ stores across NYC, Seattle, and San Francisco amidst a reevaluation of its brick-and-mortar strategy.

💼 Talent Collective

p span[style*=”font-size”] { line-height: 1.6; }

In partnership with Bullpen

Development Manager, Hospitality

💰 Full-time or part-time (Remote) ❗️ Focus on a ground-up project in Texas

Development Associate, Multifamily

💰 Hourly (Remote) 📍 Emphasis on Miami-area multifamily

Marketing Specialist

💰 Hourly (Remote) 📍 Emphasis on markets in the Southeast

p span[style*=”font-size”] { line-height: 1.6; }

Looking to hire? Connect with Bullpen

🤝 Deals & Dealmakers

Fit for a king: Fort Partners reached a deal for a 30-year lease to invest $57.5M into transforming a 15th-century Italian palace into a boutique hotel in Vatican City.
Come on over: BlackRock (BLK) started two new private equity funds, setting their sights on wealthy Europeans. They plan on raising $1.1B for their new Long-Term Investment Funds.
Teacher’s pet: Santa Clara County is proposing the construction of affordable housing for teachers on land owned by Apple (APPL) in Cupertino.
The place to be: Palm Beach Gardens has been a magnet for high-profile investment and development due to its balance of growth and quality lifestyle.
M&A of the day: Stockholders in iStar (STAR) and Safehold Inc. (SAFE) have approved the $1.6B merger between the two companies.
Storage solutions: GreenPoint Partners will partner with Semi-Stow to launch a platform for the outdoor storage of trucks and trailers, setting their sights on a $500M portfolio.
Affordable housing empire: Standard Communities bought a controlling interest in a portfolio of 3.2K affordable housing units in FL and GA. The deal is the largest in the firm’s history.
Here comes the neighborhood: Sunset Development has plans to build 3K homes at the 92-acre site which housed the former HQ for Chevron in San Ramon.

📈 Chart of the Day

p span[style*=”font-size”] { line-height: 1.6; }

Silicon Valley Bank’s (SVB) exposure to bonds purchased in the last few years is similar to many banks. It’s no wonder the Fed stepped in to prevent rampant “what-if” scenario speculations.