Op-Ed: The bullet everyone saw coming is due this year — Commercial property is in deep trouble

A business centre in the heart of London. Image. — © Tim Sandle.

It’s interesting that markets that keep sticking to obsolete not to say fraudulent business models keep tanking, isn’t it? The commercial property market and its dung cart of bad loans is about to hit the fan, and it could be worse than 2008 for banks and lenders.

These commercial property bad loans are worth trillions. Some are better than others, but “better than godawful” isn’t exactly an investment opportunity.

Yep, it’s “Go back to your deeply indebted unflippable office and keep the myth alive” time. The building may be gone before you get there, at this rate.

At a time when people can’t even afford to rent a home, this will be just one more bit of necrotic fecal icing on the cake. As though the global economy wasn’t in a bad enough state, particularly in the West, without this.  

Commercial property was a shining light. Now nobody will touch it. Prices have been caving in since 2022. Lenders stock prices have been crashing, too. Exposure to this black hole is dangerous.

Valuations for these overstated chicken coops are also likely to be worthless. The valuations are always on the upside. In the big commercial property booms, nobody did a lot of due diligence. They just made money for themselves.

The New York Community Bancorp is a good example of what happens when the waters and the liquidity get choppy. This bank is a “regional” bank. It’s not huge. It’s not even a bad player. It’s in a market that’s this dangerous. It’s a player in a famously tough regional market. This type of lending is core business for banks of this type.

So, when the market pulls the rug out from under valuations, and the bank makes losses, the stock price gets hammered. Extrapolate this to every other bank on Earth, and you see the problem.

Lenders are now directly in the firing line.

This means that they have to cover their tails. That will make borrowing more expensive. Never mind official interest rates, rates can go up on their own as demand for credit increases.

There’s another issue here. If these bad loans aggregate and become massive losses across the banking and credit sectors, it’s Armageddon.

Excuse the expression:

“They’re too big to bail. “

Nobody has a few lazy trillion to bail them out. The US can’t do 3 to 4 trillion dollars. Europe can’t, although their debt is slightly more manageable. Local economies with heavy property investment like the UK, and Australia will be floundering.

How did it all happen, you ask, slyly hiding under that nice oxalis with your 18 children and 200 or so dependents?

Waaal…

You remember when deregulation was the big deal for rich hypocritical criminal drunks who believed in Reaganomics and Thatcherism? They didn’t actually believe in them but saw opportunities. Making bad loans and fiscal irresponsibility became a lot easier with no compliance. Let’s just say corruption became a lot more profitable.

Credit makes the world go round, but it can also stop it going round in cases like this. The hit to the credit market will be bad enough in real money, let alone pretend money.

How to fix it, you enquire from your bunker in the Mojave Desert?

Quarantine the loans.

Dispose of the borrowers and some of the lenders in some scenic landfill.

Anyone working with credit must be required to have at least one verifiable IQ point.

Regulate the hell out of these fools.

Who’s paying for it, you ask in your fashionable graffiti-ornamented crypt? You are, as usual. This will spill over into consumer credit soon enough.

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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.