oldarmy1 said:

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House Finance Committee Member says the infusion by the Fed was intentionally designed to create a major market lift synced up with Trump's arraignment. Just wow if true. And I note that Trump was initially expected to turn himself in Friday, until his own Secret Service delayed it.

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Wait til someone leaks what the Fed can do as a naked short seller..

Ok party people. Long post. Made sure to post after action was over. Thought about not posting here, but this is the best place and its pretty relevant to the market.

Talk of CRE being bad news bears is starting to pick up. Especially office space. Let's look at a relatively low complexity example and see if we can't spot why. I will preface here, especially to the financial experts who have experience in commercial lending, that this example will ignore an absolute mammoth number of items that factor into each and every aspect of the example. So please don't nit pick. This is educational only. And yes, this gets a little in the weeds. Unfortunately, for everyone to understand, you must get a little deeper than the surface. I tried to make it as easy as possible.

The scenario will be a fairly common one from the last 5 years, most especially 2020 and 2021. We have to understand where we are and how we got here. Covid "happened", and in response, the FED dropped rates to 0% to entice a continuation of borrowing and to prevent a catastrophic event. This was literally their last tool in their belt, and we had been on this trend of explosive expansion of money supply and historically low rates since the FED kicked the can after 2008. Had it not worked, we would be in a depression already. Market rates all over the world were either there or lower (lower, huh? don't worry about it). LIBOR and SOFR (replaces LIBOR going forward), which are the most common benchmarks for commercial loans, were also near 0%.

When a lender lends money for commercial real estate purchases, they will usually either do so based on a fixed rate tied to a treasury (usually 5, 7, or 10 year US) or a floating rate tied to LIBOR (and now SOFR) with an additional spread on top. For treasuries, the longer the term, the lower the benchmark rate (usually), and the lower your debt rate (usually). The benchmark is the base and the spread is what the lender expects to profit from it. If the lender can't profit, they aren't going to loan. So there is always a spread. And as risk rises, spreads widen. When rates were low, short term bridge loans (think a 5 year term with balloon payment at the end) were popular over longer-term government backed debt because the rate was lower and you could terminate at any time (whereas the treasury-based debt backed by the government locked you in with a massive prepayment penalty). Here's a quick example of how the LIBOR or SOFR rate works.

$100,000 loan.
1% (100 basis points) SOFR.
2% (200 basis points) spread.
3% All in rate.

Interest Payment = $100,000 x .03 = $3,000 yearly.
Bank expected profit = $100,000 x .02 = $2,000 yearly.

And most commercial real estate firms with these types of loans are operating on interest only payments for the first 1-5 years (depending on the length, benchmark, and risk), so that $3,000 is all they are expecting to pay yearly at that exact rate initially.

But SOFR is a market floating rate. So, what happens when it goes up or down? You guessed it. the payment goes up or down. Let's see what happens when market rates jump to 4%.

$100,000 loan.
4% SOFR.
2% spread.
6% All in rate.

Interest Payment = $100,000 x .06 = $6,000 yearly.
Bank expected profit = $100,000 x .02 = $2,000 yearly.

The bank is making the same amount. But the borrower is paying double. What does 100% increase in debt service do to a bottom-line cash flow? You don't even have to do the math, the answer is not good.

Luckily, most borrowers using floating rates are forced by their lender to buy a rate cap. A rate cap puts, you guessed it, an agreed upon cap over the floating benchmark rate at time of execution. This rate cap has a term and a cost, and the cost is close to the amount you expect to save over the term, essentially meaning that rates need to go beyond the cap long term for the cap to do its job and eventually save you money. There's more factors that determine the cost, but that's not material at the moment. In this manner, the rate cap is actually just an additional factor of your total debt service, even though its cost is paid up front at closing. So, in the event rates rise above your cap, the cap provider starts making payments in the amount over the cap, and you still make payments up to the cap amount. There's also scenarios where you have to escrow expected future rate cap costs beyond your current cap's expiration. But, again, not material right now.

So, using the scenario from above, if your rate cap was 2% over SOFR, and rates rose to 4%, you would only make payments of $5,000 yearly (1% SOFR + 2% rate cap + 2% spread), and the cap provider would make payments of 1% (6% all in rate - 5%). So, while you aren't paying 6% rate and 100% increase in debt service, you are still paying 5% and 67% increase in debt service. And if that increase wasn't accounted for in pro forma and budgeting, there will be very unhappy investors.

Ok, good so far? Take a breather.



All of this was important, in as simple terms as I can provide, because it's all come to fruition in MUCH larger numbers. Let's take a (still educational and still missing dozens of factors) much more realistic look at what a single property might look like. First the basic assumptions.

- Office building purchased on 3/1/20 (preceding COVID) with Gross Potential Income yearly of $2.5M.
- Only metrics adjusted for market conditions are vacancy and estimated expense inflation.
- Vacancy and cap rates are close estimations to actual US average levels.
- Assumes bridge loan with 3-year term (and option to purchase 2 additional years with market rate extension fees), at 75% of purchase price, full term interest only payments at 1-month SOFR (0.61% at this time) plus 200 bp spread. All in rate at closing is 2.61%.
- 3-year rate cap of 250 bps over 3/1/20 SOFR (0.61%), capping you at 3.11% plus 2% spread. All in capped rate is 5.11%. Cost at the time was roughly 235 bp's equating to $440k paid up front at closing.

Here we go, let's start with the amortization table. What does it tell us?



Well, in actuality, our rate cap cost is far more than what it saved us over those three years. Rates rose beyond it, but not fast enough. So it ended up being a huge unnecessary expense we were forced to swallow. And it's now expiring. So (we would have actually done this leading up to this year.. it's too late to start this process considering expiration is upon us) we are at a point in time where we only have these options.

1. Sell the property for whatever we can get.
2. Refinance at current rates (lol)
3. Purchase an existing debt 1-year extension and purchase a new rate cap (much much higher cost than before).

Let's look at the property valuation.



So other factors the same, the drop in vacancy coupled with the rise in rates and the rise in inflation of costs (let's face it, I'm being very generous here given the reality since 2020) means that we have no cash flow and the property isn't even worth the debt we owe. And some might point out that revenue likely increased. Maybe. But keep in mind this is an office building and COVID coupled with high vacancy rates likely means we aren't raising rents over the last 3 years. So let's look at our scenarios again seeing as we're at the end of our bridge loan term and either have to extend the term, refinance, or sell.

1. Sell - We do this, and the company has to pay out of pocket to make the lender whole. If they can't they go bankrupt. Investors realize a complete loss. Lender records a loss on their books with only the interest payments received from 2020-2023 as positive outcome. Maybe some stupid group is utilizing a forward pro forma that is more generous, and we get enough proceeds to make our debt whole. Investors still aren't getting all of their money back. Result = catastrophic.

2. Refinance - Valuation of property is significantly lower and we can't pay back the full debt we owe to the existing lender. No new lender would touch this unless we could lease out all the empty space AND renew some current tenants at higher rates to increase income before we pursue this option. Even then, lender would make it very costly given risk in the market. And we are out of time. Result = not possible.

3. Purchase extension on current loan and purchase new rate cap - Spreads over today's rates make the all-in rate even higher than our previous rate was capped at. And that's even at fixed rates over treasury which would lock us into longer term high cost debt than floating rates would. And if floating, we will still have to purchase a new rate cap at much higher costs given the risk in the market. All that said, this is really the only option. And it only works if we have enough positive cash flow to pay the debt (and that would have to have a cushion). If not, lender won't allow it. Result = not likely.

So, no matter what we do, we're screwed. Maybe we get lucky and someone bails us out. Not likely.

Keep in mind this is still a very simplistic example keeping a lot of factors controlled (or ignored). But this is not a far outlier example. This is potential reality facing a LOT of deals that were made over the last 3-5 years. Time is running out, options are running out, and once the results of some of these start getting recorded in data, watch out.

Only saving grace is if the FED comes in SOON with big rate cuts. Now you know why so many people are begging for FED drop. But what happens then if they do? Roaring inflation. Kick the can down the road. Maybe this one property is saved and the investors are made whole. You think they are re-investing that cash with that company again? You think they are investing in office space moving forward? Someone eventually will pay the price. And the reality roars back quicker after each can is kicked.

What asset class is the safest? Multifamily.. for now. Because income appreciation has kept pace or outpaced expense appreciation for a lot of assets. But if insurance and taxes keep going up like they have, multifamily won't even be safe. And even as it is, it's at a potential breaking point if rates don't subside. And if CRE is weak, banks will be weaker. And likely all debt saddled investments will be weak. It's a huge contagion which is why you've been hearing "them" talk about it more and more lately.

We have entered no win territory. This is what people don't get. The FED can't just fire up the presses and drop rates. Inflation will be out of control (way worse than 2022) and the gap between potential catastrophic events (2008 --> 2020 --> 2023/2024? --> ??) is getting smaller and smaller as the amount needed to bail out is larger and larger and the debt saddled middle class is taking more on top of existing on top of more on top of existing. Eventually the music stops. It has no choice. It can't be manipulated further. Economics can't be ignored forever. History proves this over and over. I promise I'm not a permabear. It's just impossible to be a bull on longer term timeframes until we start getting back to responsible economics and realistic valuations again.

Lastly, if you get another chance to acquire assets at historically low interest rates due to a FED drop and a monetary supply expansion, do so cautiously and mind your leverage. It doesn't take much to make your valuation worth less than the debt you are forced to pay interest on.

CRE exposure is a real threat due to debt repricing that is happening daily. Making matters worse is because there was no decoupling of risk in 2008 - in other words since no one was punished, no reason to take less risk - the CRE lenders began doing 30 year amortizations. That's a major problem as there is no room for property devaluation.

Yet another reason to find a small, community bank with a low loan to deposit ratio, low Investment CRE exposure, and a small bond portfolio.

TLDR = we're all effed?

&ct=g

FJ43 said:

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I'm going with red day tomorrow. SPY

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Yup

Please predict tomorrow now!

BaylorSpineGuy said:

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Please predict tomorrow now!

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Red. Possible red to green. Watch 407.86.

I got a 50/50 shot right?

Edit: I may be wrong but I think we consolidate first between 398-407 if we will continue up.

Bonfire, can you speak to what this is saying?

"Western Alliance Bancorporation Announces First Quarter 2023 Earnings Release Date, Conference Call and Webcast, and provides Quarter End Financial Update
5:36 pm ET April 4, 2023 (BusinessWire) Print
Western Alliance Bancorporation (NYSE: WAL) announced today that it plans to release its first quarter 2023 financial results after the market closes on Tuesday, April 18, 2023. Kenneth A. Vecchione, President and CEO and Dale Gibbons, Vice Chairman and CFO will host a conference call at 12:00 p.m. ET on Wednesday, April 19, 2023 to discuss the Company's performance.

Participants may access the call by dialing 1-833-470-1428 using the access code 192362 or via live audio webcast using the website link: https://events.q4inc.com/attendee/218206682.

The webcast is also available through the Company's website at www.westernalliancebancorporation.com. Participants should log in at least 15 minutes early to receive instructions. The call will be recorded and made available for replay April 19th after 3:00 p.m. ET until May 19th at 11:00 p.m. ET by dialing 1-866-813-9403 using the access code: 279348.

In addition, Western Alliance Bank ("Western Alliance" or the "Bank"), the primary subsidiary of Western Alliance Bancorporation, today provided the following unaudited financial information as of March 31, 2023:

Total insured deposits, including collateralized and pass-through insured deposits, represent approximately 68% of total deposits, significantly higher than year-end. As of quarter-end, immediately available liquidity (on-balance sheet liquidity and unused borrowing capacity) exceeded uninsured deposits, with a coverage ratio greater than 140%. As of quarter-end, the Bank had no borrowings outstanding from the Federal Reserve's discount window after balance sheet repositioning. Western Alliance expects its CET1 ratio to be materially consistent with year-end 2022. Unrealized losses on Securities and Held for Investment (HFI) loans have improved since year-end primarily due to lower interest rates, as well as other factors. Estimated gross unrealized losses were: HTM securities - $139 million ($107 million after-tax), down from $177 million at year-end. Available-for-Sale securities - $789 million ($608 million after-tax), down from $881 million at year-end. HFI loans - $2.9 billion ($2.2 billion after-tax), down from $4.2 billion at year-end. Partially offset by unrealized gains on debt and other borrowings of $431 million ($332 million after-tax), up from $121 million as of year-end. Western Alliance maintains non-interest bearing deposits in excess of residential loans, which are the primary contributor to unrealized losses on HFI loans."

This is why this board is the best on TexAgs. Heck best in many spots.

Enjoy the nightly reading.

TxAG#2011 said:

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Your OER seems high, probably 10-20% too high unless it's some decrepit office building managed by the owner's son who's on meth.

The building should still cash flow but if the vacancy hits it then sure, light's out. If the market stabilizes I don't think it will be that big an issue.

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Probably right. The post was educational in nature. I think most quality operators attempt to control expenses at 45% of EGI or less. Some are very successful. It's true that the example was potentially more dire than reality. But at the same time, even if it's not as bad in reality as the example, the basis is true. There are no options available for many many deals with terms coming due. Market prices will be realized soon. Maybe not 30% lower than pre COVID, but certainly at least 15%. As long as rates are high. And even that is going to be painful for the economy to stomach. Because it means everything is 15% lower than what we are conditioned to expect.

Thanks for the feedback.

FJ43 said:

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This is why this board is the best on TexAgs.

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Well, the bar is pretty low.

Great Post, and unfortunately hits close to home on some deals I'm in.

Mine are multi family and while we are in better shape than your scenario, we have many challenges ahead on several deals: interest rates of 9% and climbing, DSCR tests requiring capital calls, regional banks not having funds to lend, and as of today several regional banks looking more and more like they will end up in bankruptcy.

Fun times ahead…

zagman said:

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Bonfire, can you speak to what this is saying?

"Western Alliance Bancorporation Announces First Quarter 2023 Earnings Release Date, Conference Call and Webcast, and provides Quarter End Financial Update
5:36 pm ET April 4, 2023 (BusinessWire) Print
Western Alliance Bancorporation (NYSE: WAL) announced today that it plans to release its first quarter 2023 financial results after the market closes on Tuesday, April 18, 2023. Kenneth A. Vecchione, President and CEO and Dale Gibbons, Vice Chairman and CFO will host a conference call at 12:00 p.m. ET on Wednesday, April 19, 2023 to discuss the Company's performance.

Participants may access the call by dialing 1-833-470-1428 using the access code 192362 or via live audio webcast using the website link: https://events.q4inc.com/attendee/218206682.

The webcast is also available through the Company's website at www.westernalliancebancorporation.com. Participants should log in at least 15 minutes early to receive instructions. The call will be recorded and made available for replay April 19th after 3:00 p.m. ET until May 19th at 11:00 p.m. ET by dialing 1-866-813-9403 using the access code: 279348.

In addition, Western Alliance Bank ("Western Alliance" or the "Bank"), the primary subsidiary of Western Alliance Bancorporation, today provided the following unaudited financial information as of March 31, 2023:

Total insured deposits, including collateralized and pass-through insured deposits, represent approximately 68% of total deposits, significantly higher than year-end. As of quarter-end, immediately available liquidity (on-balance sheet liquidity and unused borrowing capacity) exceeded uninsured deposits, with a coverage ratio greater than 140%. As of quarter-end, the Bank had no borrowings outstanding from the Federal Reserve's discount window after balance sheet repositioning. Western Alliance expects its CET1 ratio to be materially consistent with year-end 2022. Unrealized losses on Securities and Held for Investment (HFI) loans have improved since year-end primarily due to lower interest rates, as well as other factors. Estimated gross unrealized losses were: HTM securities - $139 million ($107 million after-tax), down from $177 million at year-end. Available-for-Sale securities - $789 million ($608 million after-tax), down from $881 million at year-end. HFI loans - $2.9 billion ($2.2 billion after-tax), down from $4.2 billion at year-end. Partially offset by unrealized gains on debt and other borrowings of $431 million ($332 million after-tax), up from $121 million as of year-end. Western Alliance maintains non-interest bearing deposits in excess of residential loans, which are the primary contributor to unrealized losses on HFI loans."

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Looks like they wanted to reassure investors since they were targeted as at risk. That information should be well received. It goes a little beyond the normal call reports. Those of you that bought it should be happy that it was on sale.

The lower 2 yr and 10 yr treasuries since the crisis began will help everyones bond portfolios. The greatest risk to banks is the drop in liquidity that would cause them to have to realize those losses. It appears Western Alliance is in better shape than most, but the call report on liquidity will be key

FJ43 said:

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BaylorSpineGuy said:

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Please predict tomorrow now!

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Red. Possible red to green. Watch 407.86.

I got a 50/50 shot right?

Edit: I may be wrong but I think we consolidate first between 398-407 if we will continue up.

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if Fed pumped the markets last week and is not now, we could easily test 4000. and like OA has eluded to, stay away in May happens in April.
I scalped puts today, but holding a couple runners

Heineken-Ashi said:

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Ok party people. Long post. Made sure to post after action was over. Thought about not posting here, but this is the best place and its pretty relevant to the market.

Talk of CRE being bad news bears is starting to pick up. Especially office space. Let's look at a relatively low complexity example and see if we can't spot why. I will preface here, especially to the financial experts who have experience in commercial lending, that this example will ignore an absolute mammoth number of items that factor into each and every aspect of the example. So please don't nit pick. This is educational only. And yes, this gets a little in the weeds. Unfortunately, for everyone to understand, you must get a little deeper than the surface. I tried to make it as easy as possible.

The scenario will be a fairly common one from the last 5 years, most especially 2020 and 2021. We have to understand where we are and how we got here. Covid "happened", and in response, the FED dropped rates to 0% to entice a continuation of borrowing and to prevent a catastrophic event. This was literally their last tool in their belt, and we had been on this trend of explosive expansion of money supply and historically low rates since the FED kicked the can after 2008. Had it not worked, we would be in a depression already. Market rates all over the world were either there or lower (lower, huh? don't worry about it). LIBOR and SOFR (replaces LIBOR going forward), which are the most common benchmarks for commercial loans, were also near 0%.

When a lender lends money for commercial real estate purchases, they will usually either do so based on a fixed rate tied to a treasury (usually 5, 7, or 10 year US) or a floating rate tied to LIBOR (and now SOFR) with an additional spread on top. For treasuries, the longer the term, the lower the benchmark rate (usually), and the lower your debt rate (usually). The benchmark is the base and the spread is what the lender expects to profit from it. If the lender can't profit, they aren't going to loan. So there is always a spread. And as risk rises, spreads widen. When rates were low, short term bridge loans (think a 5 year term with balloon payment at the end) were popular over longer-term government backed debt because the rate was lower and you could terminate at any time (whereas the treasury-based debt backed by the government locked you in with a massive prepayment penalty). Here's a quick example of how the LIBOR or SOFR rate works.

$100,000 loan.
1% (100 basis points) SOFR.
2% (200 basis points) spread.
3% All in rate.

Interest Payment = $100,000 x .03 = $3,000 yearly.
Bank expected profit = $100,000 x .02 = $2,000 yearly.

And most commercial real estate firms with these types of loans are operating on interest only payments for the first 1-5 years (depending on the length, benchmark, and risk), so that $3,000 is all they are expecting to pay yearly at that exact rate initially.

But SOFR is a market floating rate. So, what happens when it goes up or down? You guessed it. the payment goes up or down. Let's see what happens when market rates jump to 4%.

$100,000 loan.
4% SOFR.
2% spread.
6% All in rate.

Interest Payment = $100,000 x .06 = $6,000 yearly.
Bank expected profit = $100,000 x .02 = $2,000 yearly.

The bank is making the same amount. But the borrower is paying double. What does 100% increase in debt service do to a bottom-line cash flow? You don't even have to do the math, the answer is not good.

Luckily, most borrowers using floating rates are forced by their lender to buy a rate cap. A rate cap puts, you guessed it, an agreed upon cap over the floating benchmark rate at time of execution. This rate cap has a term and a cost, and the cost is close to the amount you expect to save over the term, essentially meaning that rates need to go beyond the cap long term for the cap to do its job and eventually save you money. There's more factors that determine the cost, but that's not material at the moment. In this manner, the rate cap is actually just an additional factor of your total debt service, even though its cost is paid up front at closing. So, in the event rates rise above your cap, the cap provider starts making payments in the amount over the cap, and you still make payments up to the cap amount. There's also scenarios where you have to escrow expected future rate cap costs beyond your current cap's expiration. But, again, not material right now.

So, using the scenario from above, if your rate cap was 2% over SOFR, and rates rose to 4%, you would only make payments of $5,000 yearly (1% SOFR + 2% rate cap + 2% spread), and the cap provider would make payments of 1% (6% all in rate - 5%). So, while you aren't paying 6% rate and 100% increase in debt service, you are still paying 5% and 67% increase in debt service. And if that increase wasn't accounted for in pro forma and budgeting, there will be very unhappy investors.

Ok, good so far? Take a breather.



All of this was important, in as simple terms as I can provide, because it's all come to fruition in MUCH larger numbers. Let's take a (still educational and still missing dozens of factors) much more realistic look at what a single property might look like. First the basic assumptions.

- Office building purchased on 3/1/20 (preceding COVID) with Gross Potential Income yearly of $2.5M.
- Only metrics adjusted for market conditions are vacancy and estimated expense inflation.
- Vacancy and cap rates are close estimations to actual US average levels.
- Assumes bridge loan with 3-year term (and option to purchase 2 additional years with market rate extension fees), at 75% of purchase price, full term interest only payments at 1-month SOFR (0.61% at this time) plus 200 bp spread. All in rate at closing is 2.61%.
- 3-year rate cap of 250 bps over 3/1/20 SOFR (0.61%), capping you at 3.11% plus 2% spread. All in capped rate is 5.11%. Cost at the time was roughly 235 bp's equating to $440k paid up front at closing.

Here we go, let's start with the amortization table. What does it tell us?



Well, in actuality, our rate cap cost is far more than what it saved us over those three years. Rates rose beyond it, but not fast enough. So it ended up being a huge unnecessary expense we were forced to swallow. And it's now expiring. So (we would have actually done this leading up to this year.. it's too late to start this process considering expiration is upon us) we are at a point in time where we only have these options.

1. Sell the property for whatever we can get.
2. Refinance at current rates (lol)
3. Purchase an existing debt 1-year extension and purchase a new rate cap (much much higher cost than before).

Let's look at the property valuation.



So other factors the same, the drop in vacancy coupled with the rise in rates and the rise in inflation of costs (let's face it, I'm being very generous here given the reality since 2020) means that we have no cash flow and the property isn't even worth the debt we owe. And some might point out that revenue likely increased. Maybe. But keep in mind this is an office building and COVID coupled with high vacancy rates likely means we aren't raising rents over the last 3 years. So let's look at our scenarios again seeing as we're at the end of our bridge loan term and either have to extend the term, refinance, or sell.

1. Sell - We do this, and the company has to pay out of pocket to make the lender whole. If they can't they go bankrupt. Investors realize a complete loss. Lender records a loss on their books with only the interest payments received from 2020-2023 as positive outcome. Maybe some stupid group is utilizing a forward pro forma that is more generous, and we get enough proceeds to make our debt whole. Investors still aren't getting all of their money back. Result = catastrophic.

2. Refinance - Valuation of property is significantly lower and we can't pay back the full debt we owe to the existing lender. No new lender would touch this unless we could lease out all the empty space AND renew some current tenants at higher rates to increase income before we pursue this option. Even then, lender would make it very costly given risk in the market. And we are out of time. Result = not possible.

3. Purchase extension on current loan and purchase new rate cap - Spreads over today's rates make the all-in rate even higher than our previous rate was capped at. And that's even at fixed rates over treasury which would lock us into longer term high cost debt than floating rates would. And if floating, we will still have to purchase a new rate cap at much higher costs given the risk in the market. All that said, this is really the only option. And it only works if we have enough positive cash flow to pay the debt (and that would have to have a cushion). If not, lender won't allow it. Result = not likely.

So, no matter what we do, we're screwed. Maybe we get lucky and someone bails us out. Not likely.

Keep in mind this is still a very simplistic example keeping a lot of factors controlled (or ignored). But this is not a far outlier example. This is potential reality facing a LOT of deals that were made over the last 3-5 years. Time is running out, options are running out, and once the results of some of these start getting recorded in data, watch out.

Only saving grace is if the FED comes in SOON with big rate cuts. Now you know why so many people are begging for FED drop. But what happens then if they do? Roaring inflation. Kick the can down the road. Maybe this one property is saved and the investors are made whole. You think they are re-investing that cash with that company again? You think they are investing in office space moving forward? Someone eventually will pay the price. And the reality roars back quicker after each can is kicked.

What asset class is the safest? Multifamily.. for now. Because income appreciation has kept pace or outpaced expense appreciation for a lot of assets. But if insurance and taxes keep going up like they have, multifamily won't even be safe. And even as it is, it's at a potential breaking point if rates don't subside. And if CRE is weak, banks will be weaker. And likely all debt saddled investments will be weak. It's a huge contagion which is why you've been hearing "them" talk about it more and more lately.

We have entered no win territory. This is what people don't get. The FED can't just fire up the presses and drop rates. Inflation will be out of control (way worse than 2022) and the gap between potential catastrophic events (2008 --> 2020 --> 2023/2024? --> ??) is getting smaller and smaller as the amount needed to bail out is larger and larger and the debt saddled middle class is taking more on top of existing on top of more on top of existing. Eventually the music stops. It has no choice. It can't be manipulated further. Economics can't be ignored forever. History proves this over and over. I promise I'm not a permabear. It's just impossible to be a bull on longer term timeframes until we start getting back to responsible economics and realistic valuations again.

Lastly, if you get another chance to acquire assets at historically low interest rates due to a FED drop and a monetary supply expansion, do so cautiously and mind your leverage. It doesn't take much to make your valuation worth less than the debt you are forced to pay interest on.

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First off, great, simple analysis. This probably warrants it's own thread based on the responses. The only way out I see below.

1. FED to hold for now, slightly reduce rates in the future

2. Employers pay workers more so our affordability issues go away.

3. Workers don't consume anything else but the delta in rent to prevent the over heating of the economy.


Orrrrrr as you said Bail out CRE…. It's essentially the same thing but with much less steps.


Prisoner's Dilemma all over this one.

Only problem with employers raising salaries is it doesn't help inflation. Most people need to figure out how to reduce discretionary spending and deal without through some tough times.