Kevin O’Leary on Office Building Bust: 'Nobody Saw This Coming'...No, The Trends Journal Did
Gerald Celente has warned about the Office Building Bust for three years -- at the start of the COVID War -- but was ignored by the mainstream
Kevin O’Leary, the “Shark Tank” host, recently told Fox Business that nobody saw the office building bust coming.
“These banks are going to fail,” he said, according to Yahoo Finance. “because up to 40 percent of their portfolios … are in commercial real estate.”
O’Leary must not subscribe to The Trends Journal and gets his business news from the mainstream morons.
The office building bust is one of our most active Top Trends 2023, although we predicted the collapse of the office economy early in the COVID War and on through a series of detailed reports.
As Trends Journal subscribers well know, when the COVID War was officially launched in the United States by President Donald Trump on 13 March 2020, Black Friday, and people were forced to work from home, we had forecast an Office Building Bust.
While it was ignored by the mainstream media for some three years, and despite our sending out tens of thousands of press releases forecasting this trend, it is now finally making the mainstream press.
We’ve said higher costs and the need to offer free months and other perks to keep tenants and attract new ones have squeezed landlords’ margins. Many will be unable to pay off their loans, much less renegotiate them at vastly higher interest rates.
Ultimately, the commercial real estate bust will force more banks to sell themselves to competitors to avoid failure. However, more bank failures are not out of the question. In fact, we are headed for the worst banking crisis in modern history since this Office Building Bust is global.
NEVER MISS AN ISSUE OF HISTORY BEFORE IT HAPPENS
Echoing Celente’s July 2020 forecast, Bloomberg’s Markets Live Pulse survey reports that a majority of 919 respondents believe that the market value of U.S. office buildings is due to crash.
Property prices peaked in March 2022 and have declined 16 percent since then, according to data service Green Street.
About 600 survey participants believe the market will recover only after it collapses and more than two-thirds of respondents say that values will continue falling at least until the second half of next year.
Roughly $1.5 trillion in commercial real estate loans are coming due before 2026, according to Morgan Stanley. About 25 percent of those properties are office buildings.
Office landlords will have a hard time paying off or refinancing those loans, especially since new loans will carry interest rates more than double those of what they were in 2021.
Also, the shift to remote work has gutted office space. The occupancy rate in 10 major U.S. cities was 50.4 percent last week, according to security firm Kastle Systems, which monitors swipe card use. Occupancy has remained with a few points of that number for more than a year.
Meanwhile, lenders have troubles of their own.
While seeing deposits shrink, banks also are having to pay higher interest rates to keep the depositors they still have.
Banks also have been forced to set aside larger amounts of cash as cushions against a rising tide of bad loans. As a result, banks are making fewer loans and being more selective about who they lend to.
Small and regional banks hold more than half of U.S. commercial real estate debt. Refinancing increasingly risky loans in a sliding real estate market will not be a priority.
Similarly, investors are unlikely to buy properties now that values are on the way down—and, for now, owners are reluctant to sell.
“Nobody wants to sell at a huge loss,” Barclays analyst Lea Overby said in comments quoted by Yahoo Finance. “These are properties that don’t need to be sold for long periods of time, and that means holders are likely to delay a sale as long as they can.”
“The office sector is deeply distressed, which will take a long time to work out,” she added.
TREND FORECAST: A majority of Bloomberg’s survey respondents expect the market to recover. It may stabilize after next year, but it will never “recover” to pre-COVID levels.
Although employers are demanding that workers return to a five-day, 9-to-5 in-office routine, too many workers are pushing back and insisting on a hybrid or fully remote arrangement. As long as the labor market remains tight, those workers will prevail, especially those in high-demand sectors.
Because remote work is here to stay, a large percentage of existing office space has become permanently “surplus to requirements,” as the British say.
Older buildings in need of repairs or updating will be unable to pay their way as tenants shrink their space needs and-or migrant to newer buildings with more amenities, such as green energy systems, better air circulation, more natural light, and even fitness centers.
As we have noted before, some creative landlords will meet city dwellers’ need for experiences by opening their empty office space to yoga studios, music academies, coffee houses, adult education centers, and other service-oriented enterprises—if their buildings are not in need of serious repairs.
These landlords will find interested partners in city agencies that will need to provide waivers or changes to zoning ordinances, building codes, and other regulations to accommodate these new tenants.
However, landlords will be stuck holding many buildings unable to pay their way.
Eventually, these owners will default on their taxes or mortgages. Ultimately, cities will wind up owning portfolios of empty office buildings that no one can afford to keep up.
At that point, the real estate will be sold for cheap, relatively speaking, and buildings will be demolished to prepare the sites for new lives in a new economy.
OLeary is a failed wanna be trump...
Yes you have been saying it Mr. Celente. And I been passing that on to closed ears.
Hank Paulson stated that nobody saw the 2008 Financial Crisis coming. No, I did.