The Commercial Real Estate Sector's Struggles Get Worse

Posted by Ed 12 days ago
Troubles in this sector tend to trickle down to residential real estate and the overall banking sector.
Last week, WeWork filed for bankruptcy and shook the Commercial Real Estate (CRE) sector at its seams. The company revolutionized the industry in 2010 with a simple business model: Lease office spaces from landlords at discounted rents, then beautify the areas up with ergonomically designed workstations and re-rent them to customers on a permanent or temporary basis at a markup.

We warned our readers eight months ago in our editorial about the impending crisis in the industry: Commercial Real Estate Struggles As Work-From-Home And High-Interest Rates Take A Toll

The commercial real estate industry - offices, industrial, retail (malls), and multifamily housing (apartments) - is facing two unprecedented structural challenges, both of which show no signs of easing. WeWork is a symptom of these challenges.

Covid. First, when Covid attacked with a vengeance, the CRE sector took a direct hit. Lockdowns meant that staff worked from home. The allure of downtowns fell as workers stopped visiting restaurants and eateries they had often flocked to during lunch and after work.

As Covid eased, companies perfected the hybrid model, with most employees working from home a few days a week. Companies began resorting to the so-called "hoteling" system. If employees wanted to work in the office, they had to "reserve" a working space that would expire at the end of the day. According to the Census Bureau's Household Pulse Survey, 29% of Americans reported at least one person in the household working remotely for at least one day a week between September 20 and October 2. 

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Ed 12 days ago
The Clearest Sign Yet That Commercial Real Estate Is in Trouble
Foreclosures are surging in an opaque and risky corner of commercial real-estate finance, offering one of the starkest signs yet that turmoil in the property market is worsening.

Lenders this year have issued a record number of foreclosure notices for high-risk property loans, according to a Wall Street Journal analysis. Many of these loans are similar to second mortgages and commonly known as mezzanine loans. 

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