Category Archives: Real Estate

Office Vacancies In China Hit Decade High Amid Economic Turmoil

A darkening outlook for China’s economy continues to materialize week by week.

New data from commercial property group CBRE warns the country’s office vacancy rate has just surged to the highest since the financial crisis of 2007–2008, first reported by Bloomberg.

CBRE said the vacancy rate for commercial office space in 17 major cities rose to 21.5% in 3Q19, a level not seen since the global economy was melting down in 2008.

Sam Xie, CBRE’s head of research in China, said the recent “spike” in vacancies is one of the worst since the last financial crisis.

Catherine Chen, Cushman & Wakefield’s head of research for Greater China, told Financial Times that soaring commercial office vacancies in China was mainly due to dwindling demand, but not oversupplied conditions.

“Contributing factors included slower expansion of co-working operators and financial services companies, and a general cost-saving strategy adopted by most tenants given ongoing trade tensions and economic growth slowdown,” she added.

Henry Chin, head of research for Asia Pacific at CBRE, told Financial Times that macroeconomic headwinds relating to the trade war between the US and China were also a significant factor in rising office vacancies.

As shown in the Bloomberg chart below, using CBRE data, Shanghai and Shenzhen had the highest office vacancies than any other city, and both had around 20% of office spaces dormant.

And with the global economy in a synchronized slowdown, global growth estimates are now printing at 3%, the slowest pace since the financial crisis. The Chinese economy will likely continue to slow, and could see domestic growth under 6% this year. This suggests that China’s office space vacancies will continue to rise through year-end.Office Vacancies In China Hit Decade High Amid Economic Turmoil

Source: ZeroHedge

First Ever Triple Bubble in Stocks, Real Estate & Bonds – With Nick Barisheff

We are living in an age of records in the financial world. The stock market is in its longest bull market in history and near all-time highs.  The world has more debt than ever before while interest rates are near record lows, and some are negative in many countries for the first time ever.  Nick Barisheff, CEO of Bullion Management Group (BMG), is seeing a dark ending for the era of financial records. Barisheff explains,

“I have been in the business for 40 years, and this is the first time we have had a simultaneous triple bubble, a bubble in real estate, stocks and bonds all at the same time.  In 1999, it was a stock bubble. In 2007, it was a real estate bubble. This time, we’ve got a triple simultaneous bubble.  So, when we have the correction, it’s going to be massive. Value calculations on equities say it’s worse than 1999, and in some cases worse than 1929. The big problem is this triple bubble is sitting on a mountain of debt like never before.”

What is going to be the reaction to this record bubble in everything crashing?  Barisheff says, “I think you are going to be getting riots in the streets.  It’s already happening in California. CalPERS is the pension fund administrator for a lot of the pension funds in California. So, already retired teachers, firefighters and policemen that are sitting in retirement getting their pension checks all got letters saying sorry, your pension checks from now on are going to be reduced by 60%.  How do you get by then?”

What happens if the meltdown picks up speed and casualties?  Barisheff says,

“I think the only option will be for the government is to print more money and postpone the problem yet a little bit longer, but that leads to massive inflation and eventually hyperinflation.  Every fiat currency that has ever existed has always ended in hyperinflation, every single one.  Since 1800, there have been 56 hyper inflations. Hyperinflation is defined as 50% inflation per month.  That’s where we are going and what other choice is there?”

So, what do you do?  Barisheff says,

“In the U.S. dollar since 2000, gold is up an average of 9.4% per year. In some countries, it’s up 14% and so on.  If you take the overall average of all the countries, the average increase is 10% a year.  Every time Warren Buffett is on CNBC, he seems to go out of his way to disparage gold, but if you look at a chart of Berkshire Hathaway and gold, gold has outperformed Berkshire Hathaway. . .  Everybody worships Warren Buffett as the best investor in the world, and gold has outperformed his fund in U.S. dollars.  I would not disparage gold if I were him. I’d keep quiet about it.”

There is a first for Barisheff, too, in this financial environment.  He says for the first time ever, he’s “100% invested in gold” as a percentage of his portfolio.  He says the bottom “is in for gold,” and “the bottom is in for silver, too.”

Barisheff contends that with the record bubbles and the record debt, both gold and silver will be setting new all-time high records as well in the not-so-distant future.

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Nick Barisheff, CEO of BMG and the author of the popular book “$10,000 Gold.”

Fed Warns WeWork Business Model Is A Systemic Risk To The U.S. Economy

(ZeroHedge) In a stunning rebuke, echoing very closely our own concerns, Boston Fed President Eric Rosengren has – without naming-names – called out the WeWork business model as being a systemic risk to the US economy.

 

Two weeks ago we asked (rhetorically)…

Here is the problem as we laid it out:

While the collapse and/or bankruptcy of WeWork would hardly lead to a personal finance disaster – SoftBank’s Masayoshi Son is already Japan’s richest man and with a net worth of over $20 billion can easily stomach losing billions on WeWork (and Uber) – it would send shockwaves across US commercial real estate, as the company is already the single biggest tenant in New York City, as well as Chicago, Denver and central London.

In fact, with over $47 billion in lease liabilities, WeWork is already one of the world’s largest lessees, trailing only oil exploration giants Petrobras and Sinpec, an astonishing feat for the flexible office space provider “which was founded less than a decade ago, bleeds cash, and doesn’t plan to become profitable any time soon.”

As Bloomberg recently noted, “anyone weighing whether to buy shares in WeWork’s IPO cannot ignore the fact that the company will have to find $47 billion from somewhere in coming years to meet its contractual obligations – including about $10 billion in just the next five years. Right now, its own very negative cash flows won’t cut it.”

And now, it appears, Eric Rosengren has realized just how serious this leveraged debacle has become. In a speech delivered to New York University today – following his already hawkish tone from this morning by which he highlighted The Fed’s easy money policy has enabled record leverage – the Boston Fed head seems to have seen the light, fearing financial instability from WeWork and its ilk…

Mr. Rosengren noted the risks posed by commercial real estate, which have long been a concern of his, as a possible vector to amplify trouble.

Without naming any firms, Mr. Rosengren noted the particular concerns posed by co-working companies. He made this comment as the parent of office-sharing firm WeWork postponed its initial public offering amid investor doubts about its valuation and concerns about its corporate governance.

Office-sharing firms are particularly exposed to risks should the economy run into trouble, and could wound landlords in the process, Mr. Rosengren said.

“In a downturn the co-working company would be exposed to the loss of tenant income, which puts both them and the property owner at risk if they cannot make lease payments to the owner of the building,” he said.

“I am concerned that commercial real estate losses will be larger in the next downturn because of this growing feature of the real estate market, which could ultimately make runs and vacancies more likely due to this new leasing model,” Mr. Rosengren said.

“The fact that the shared office model relies on small-company tenants with short-term leases, combined with the potential lack of recourse for the property owner, is potentially problematic in a recession. This also raises the issue of whether bank loans to property owners in cities with major penetration by co-working models could experience a higher incidence of default and greater loss-given-defaults than we have seen historically.”

Of course, he is right. As we concluded more explicitly, in a bankruptcy, all those obligations would be frozen and squeezed among all the other pre-petition claims, which of course means that the commercial real estate market of cities where WeWork is especially active – like New York and London (and Rosengren’s Boston) – would suddenly find itself paralyzed, as a deflationary tsunami is unleashed among one of the strongest performing markets since the financial crisis.

***

Here Are The Billions Of Loans Exposed To A Potential WeWork Bankruptcy

Is WeWork A Fraud?

Lenders Raise Collateral Concerns Over WeWork CEO’s $500 Million Personal Credit Line

WeWork Bonds Are Crashing (Again)

Masayoshi Son Has Pledged 38% Of His SoftBank Stake For Loans From 19 Different Banks…

London Office Space Deals Falter Amid Fallout From WeWork’s Cancelled IPO

Furious WeWork Employees Blame CEO’s “Outsized Personality” For IPO’s Collapse

Blain: “WeWork Turned Out To Be Not A Unicorn But A Donkey With Toilet Roll Glued To Its Forehead

Softbank Shares Tumble As Investors Waver Over New Fund After WeWork Farce

Large Swaths Of California Now Too Wildfire Prone To Insure

AP Photo / Marcio Jose Sanchez, File

(Nathanael Johnson) California is facing yet another real estate-related crisis, but we’re not talking about its sky-high home prices. According to newly released data, it’s simply become too risky to insure houses in big swaths of the wildfire-prone state.

Last winter when we wrote about home insurance rates possibly going up in the wake of California’s massive, deadly fires, the insurance industry representatives we interviewed were skeptical. They noted that the stories circulating in the media about people in forested areas losing their homeowners’ insurance was based on anecdotes, not data. But now, the data is in and it’s really happening: Insurance companies aren’t renewing policies areas climate scientists say are likely to burn in giant wildfires in coming years.

If governments don’t step in, that kills mortgages, so what comes next? Only all cash buys? Seller financing? And if property values in these areas decline, as they ought to, bye bye local government budgets.

Insurance companies dropped more than 340,000 homeowners from wildfire areas in just four years. Between 2015 and 2018, the 10 California counties with the most homes in flammable forests saw a 177 percent increase in homeowners turning to an expensive state-backed insurance program because they could not find private insurance.

In some ways, this news is not surprising. According to a recent survey of insurance actuaries (the people who calculate insurance risks and premiums based on available data), the industry ranked climate change as the top risk for 2019, beating out concerns over cyber damages, financial instability, and terrorism. While having insurance companies on board with climate science is a good thing for, say, requiring cities to invest in more sustainable infrastructure, it’s bad news for homeowners who can’t simply pick up their lodgings and move elsewhere.

“We are seeing an increasing trend across California where people at risk of wildfires are being non-renewed by their insurer,” said California Insurance Commissioner Ricardo Lara in a statement. “This data should be a wake-up call for state and local policymakers that without action to reduce the risk from extreme wildfires and preserve the insurance market we could see communities unraveling.”

A similar dynamic is likely unfolding across many other Western states, according to reporting from the New York Times.

To understand the data coming out of California we can use my own family as an example: A few months after Grist published a story about how my parent’s neighborhood is trying to fortify itself against future forest fires, my mom’s insurer informed her and my stepfather that they’d need to get home insurance elsewhere. For two months they called one insurer after another, but no company would take their premiums. So they turned to the state program as the insurer of last resort — which costs about three times more than they’d been spending under their previous, private insurer.

My folks have spent a lot of money clearing trees and brush from around their house. They’ve covered the walls in hard-to-burn cement panels, and the roof with metal. But insurance risk maps don’t adjust for these improvements. Instead, insurance companies seem to have made the call that the changing climate, along with years of fire suppression, have made houses in the midst of California’s dry forests a bad bet, and therefore uninsurable.

“For us, because we’ve done good financial planning and our house is paid off, it’s just an extra expense,” said my mom, Gail Johnson Vaughan. “But we have friends who have no choice but to leave.”

Source: by  Nathanael Johnson | Grist

The Global Mansion Bust Has Begun

Global real estate consultancy firm Knight Frank LLP has warned that the global synchronized decline in growth coupled with an escalating trade war has heavily weighed on luxury home prices in London, New York, and Hong Kong.

According to Knight Frank’s quarterly index of luxury homes across 46 major cities, prices expanded at an anemic 1.4% in 2Q19 YoY, could see further stagnation through 2H19.

Wealthy buyers pulled back on home buying in the quarter thanks to a global slowdown, trade war anxieties, higher taxes by governments, and restrictions on foreign purchases.

Mansion Global said Vancouver was the hottest real estate market on Knight Frank’s list when luxury home prices surged 30% in 2016, has since crashed to the bottom of the list amid increased taxes on foreign buyers. Vancouver luxury home prices plunged 13.6% in 2Q19 YoY.

Financial hubs like Manhattan and London fell last quarter to the bottom of the list as luxury home prices slid 3.7% and 4.9%, respectively.

Hong Kong recorded zero growth in the quarter thanks to a manufacturing slowdown in China, an escalating trade war, and protests across the city since late March.

However, European cities bucked the trend, recorded solid price growth in 2Q19 YoY, though the growth was muted when compared to 2017-18.

Berlin and Frankfurt were the only two cities out of the 46 to record double-digit price growth for luxury homes. Both cities benefited from a so-called catch-up trade because prices are lower compared to other European cities. Moscow is No. 3 on the list, saw luxury home prices jump 9.5% in 2Q19 YoY.

The downturn in luxury real estate worldwide comes as central banks are frantically dropping interest rates. The Federal Reserve cut rates 25bps for the first time since 2008 last month, along with Central banks in New Zealand, India and Thailand have all recently reduced rates.

The main takeaway from central banks easing points to a global downturn in growth, and resorting to sharp monetary policy action is the attempt to thwart a global recession that would ultimately correct luxury home prices.

“Sluggish economic growth explains the wave of interest rate cuts evident in the last three months as policymakers try to stimulate growth,” wrote Knight Frank in the report.

* * *

As for a composite of all global house prices, Refinitiv Datastream shows price trends started to weaken in 2018, and in some cases, completely reversed like in Australia.

House price growth for OECD countries shows the slowdown started in 2016, a similar move to the 2005 decline.

If it’s luxury real estate or less expensive homes, the trend in price has peaked and could reverse hard into the early 2020s.

Central banks are desperately lowering interest rates as the global economy turns down. Likely, the top is in, prepare for a bust cycle.

Source: ZeroHedge

Mansion Crisis: Hamptons Housing Market Had Its Worst Spring Quarter In 8 Years

Hamptons, the beachfront playground for New York City’s financial elite, just recorded the worst second quarter for sales in eight years, according to a report from Douglas Elliman and Miller Samuel, and first reported by CNBC.

Real estates sales and prices in the Hamptons extended lower through 2Q19, indicating the luxury home market continues to stagnate for the last six quarters, the report said.

The weakness in the Hamptons was confusing for CNBC, considering they said real estate in the region should have been positive because the stock market is higher. But as Zerohedge readers know, the stock market has remained extremely disconnected from fundamentals this year, if not the last decade.

The Hamptons is experiencing the same pressures as many luxury markets across the country: an oversupply of mansions, dwindling demand from foreign buyers, changes to SALT deductions, and sellers who have become delusional that real estate prices can still hold 2014 values.

With no end in sight, the bust of the Hamptons real estate market could become more severe through 2020.

Miller Samuel said the number of homes listed in the region doubled in 2Q19, to 2,500. This is the highest level the research firm has recorded since it started gathering data in 2006.

According to the report, there is a 5-month supply of listings, with more than a three-year supply of luxury properties.

“I think it’s premature to talk about a turnaround until the inventory growth slows down,” said Jonathan Miller, CEO of Miller Samuel, the appraisal firm.

“There is just not a sense of urgency. The buyers are just waiting it out.”

Brokers told CNBC that demand is showing up for more affordable homes but not for +$5 million.

“You might look at Zillow and see nine properties on the oceanfront in Southampton, which looks like a lot,” said Cody Vichinsky of Bespoke Real Estate in the Hamptons.

“But then you dig into it, and you see that six of them are in places where you’d never want to live, with constant helicopter noise or a triple dune or encumbrances. And then the others, the price is ridiculous. When a property is priced decently, it goes.”

Glancing at Zillow Hamptons, hundreds of homes are for sale ranging from $625k to $60 million.

In a recent listing, the family of James Evans, the former chairman of the Union Pacific railroad empire, put their waterfront estate in East Hampton on the market for $60 million. The 5,500-square-foot home sits on 5.4 oceanfront acres, has an estimated mortgage payment of $362k per month.

A $49 million mansion on 4.5 acres with 430 feet of direct oceanfront has been on the market for 850 days.

The pullback in Hamptons real estate is a sobering reminder that inventory is building to levels that are making sellers uncomfortable, could unleash panic selling and metastasize into a full-blown market rout with implications beyond New York City.

Source: ZeroHedge

Exodus: Foreigners Stop Buying South Florida Homes, Sales Crash 50%

A massive pullback in international buyers purchasing US real estate has been seen in the last few years, resulting in the softening of housing markets across South Florida, reported The Palm Beach Post.

Foreign buyers purchased $153 billion in US homes from April 2016 to March 2017, total sales of homes to international buyers dropped to $121 billion for the year ending in March 2018, then plunged to $77.9 billion for the year ending on March 2019, the National Association of Realtors (NAR) said in its latest report.

Florida transactions involving foreign buyers fell to 36,000 in the year ending in March 2019, down from 50,000 the previous year, and 60,000 in the year ending March 2017.

“The magnitude of the decline is quite striking, implying less confidence in owning a property in the US,” NAR Chief Economist Lawrence Yun said in a statement.

South Florida is a top destination for foreign buyers, accounting for 20% of the 183,100 international transactions nationwide over the past year.

Capital flight from Latin America over the past decade has driven at least a quarter of Florida’s real estate market, but new trends today suggest foreigners are abandoning US markets with home prices in bubble territory.

“It takes a lot more pounds to buy an American property than it did a few years ago,” said John Mike, an agent at RE/MAX Prestige Realty in Royal Palm Beach.

Mike said a stronger dollar that stated to rise in 2014 had deterred many buyers from Britain and Europe who are now increasingly buying vacation homes in Spain and the Bahamas rather than Florida.

Mike said President Trump’s crackdown on immigration and a dangerous trade war with China had hampered demand. He added that international buyers “don’t feel welcome” in America anymore because of President Trump’s policies – so they are going elsewhere.

The exodus of foreign buyers and crashing sales explains why homes in South Florida are experiencing the most significant percentage of price cuts in some time, that has led to properties staying on the market for longer, and has tipped the overall market to buyers. All of this suggests that a top could be near.

Source: ZeroHedge