CEO Fundrise warning for commercial environments - On the Market Podcast Episode

[Dennis Rogov]

Hello, 

I am not sure why nobody started discussion about this; 

Podcast 65 On The Market.. Cause to me that can be a real sea change.

What are is everyone thoughts regarding commercial space; 

I listened to podcast 2 times and it sounded like there is a potential that banks will no longer loan on commercial assets and will call in their existing mortgages.

He kept referencing 1992 I did some research about that era I was definitely not in real estate back then and it seems there was a major collapse  of commercial assets and literally after that nobody touched commercial for a while. 

[Henry Clark]

@Dennis Rogov

*******Not offering financial Advice*****

Ok.  I watched the podcast.  46 minutes.  First podcast I have ever watched.  Enjoyed it.  The speaker needs a new chair to sit in.  Was squirming a lot.  But I did enjoy it.

Here are my take aways:

1. Downtown office buildings. Stay away. Most people on BP aren't doing those REI's.

2. Commercial in general, there is a question, but Commercial covers everything from local Bowling alleys to $5billion skyscrapers. At the BP level it is more about your LTV%, and most people will be tied with their Personal Guaranty and their Personal Financial Statement.

3. If you have adjustable rate or loans with maturity dates coming due within the next 2 to 3 years. Be prepared for your banker to call for a smaller LTV. Especially if you're in the say 60% to 80% LTV range. The one commentator said they were in the 4x% range and not expecting any calls for pay downs. You might be asked to pay down 10% to 20% of the principal.

4.  Residential- won't have the same impact as Commercial.

5.  Cascade affect.  Both on the Stock/Bond market (liquid assets), Finance companies, and individual Commercial property owners. 

-  If in 3 above, debtors get squeezed they will go to their liquid assets in Stocks/Bonds to liquidate to pay down.  Depending on the magnitude this will impact the Stock/Bond market.

-  Finance companies have bigger finance companies or insurance companies backing their loans.  These larger financers will not be willing to refinance, because their Finance backers will want paydowns also.  They also don't want to own assets.

- individual property owners, if they need to pay down and can't refi, they will turn to hard money lenders, but they also will require lower LTV%'s. They won't want to be in a position to sale, in a declining market.

So, where do you want to be:

A. Be in a cash holding position. Unless your already in a 60% or less LTV% position. Then start looking for deals. Might wait for 6 months to a year, let the market decline.

B.  Don't pay down your debt, unless forced to.  Keep cash nearby.

C.  Refinance sooner than later, if your refi is coming due in the next 2 to 3 years.  Instead of 5 years, ask for a 7-year balloon period.

D. Be careful moving into more asset positions, if you're adding to a weak LTV% position. Say 80% down to 60%. Again, this is for Commercial and not residential.

E.   If you have a Line of Credit.  Don't depend on it.  It may get pulled or not be honored.  Talk with your banker before you make a move with it.

Your questions What are our thoughts on Commercial?  Will banks call in existing loans?

- Commercial going forward is the same as always.  Run your numbers.  Then make your bet.

- Banks have to honor terms.  They might not refi, if they are coming due.  Because both them and their Finance backers don't have liquidity in the value chain for those funds.

@Dennis Rogov  Based on the above, where are you at, and where do you need to get to? 

Example:  If you have money in the stock market have you moved to Bonds and CD's; to have stable values if you need to convert to cash?  You don't want to have to sell them in a down market to pay down on your debt.

Example: How does your Personal Financial Statement look, compared to your REI Debt and LTV%? If you have Net Personal Wealth of say $500,000; and REI debt of, say $100,000 with LTV of 80%; then you should be fine. If you're with a company doing layoffs, then it doesn't look so good. Especially if your working from home.

No personal response needed.  But those are the types of questions someone watching that podcast needs to address.

******Not your Financial Advisor*******

To @Mike Dymski Fed points, what will happen in 2023:  Part of a separate post I did on 2023 outlook.  I like looking at commodities.  Easier to cut through all of the noise.

Commodities: March December 1st 14 days ago

Steel               $54.46 $35.60 $38.77

Copper                 4.75  3.82 4.22

Lumber             1,441 391 344

Silver             26.46 23.16 24.49

Crude oil       111.76 79.98 79.86

Natl gas       12.80 11.00 12.22

Corn              7.49 6.26 6.75

Soybeans      17.00 14.39 15.38

Different charts, different days, you will find different numbers for the above.

Believe we are still in a Whiplash effect. Nothing ever goes out of kilter far one way and then comes back to average or normal. What I love about the above numbers they are the Purchasing indicators by 10,000's of company Buyers and 100,000's of companies what they think the future holds. And the customer orders they need to fulfill. They are bidding against each other, causing inflation.

I see inflation coming back.  Not reflected above is labor costs, which I believe are increasing.  That will be remedied by Layoffs.  The Feds have two dictates, Inflation and Unemployment rates.  They still have a long way to impact Unemployment rates, thus they still have room to put in Interest rate hikes.  Average Fed debt life is around 7 years, before they also are starting to refi themselves.  They can't take to many years of higher interest rates, before they default.  People will bring up the interest rates in the early 80's of around 18%.  But our Federal Debt was super small compared to our GDP.  Now our Fed Debt levels are multiples of our GDP.  The Fed doesn't have the GDP horsepower to increase interest rates very high.

So yes, the Fed will continue to increase interest rates.  But they can't go very high or for very long.  They can't stop inflation going higher.

You want to be in hard assets that increase in value during inflation; and you want to keep your debt, so you can pay down your P/I with cheaper dollars in the future.