The Commercial Real Estate Crisis that never happened..........

[NoahA]

You might be correct but I am looking for unemployment levels to rise and inventory levels to rise at those warehouse and distribution centers and falling prices and mark down sales on Amazon.....Also for housing prices to become affordable and Blackstone to get out of the residential market. It needs to happen.


Gen Z is really starting to get PO'd over high prices. That's how bloody revolutions begin.

Just want to put it out there that many of us bitcoiners think that RE will eventually fall to the price of utility. If there was no financial premium for RE, what would prices be? If everyone realizes that bitcoin is a better store of value, then an investment case for RE could be dead.

Since you bring up revolutions, which I think is correct, on the other side of that may very well be RE prices that are forever depressed.

 

[Sergio123]

Just want to put it out there that many of us bitcoiners think that RE will eventually fall to the price of utility. If there was no financial premium for RE, what would prices be? If everyone realizes that bitcoin is a better store of value, then an investment case for RE could be dead.

Since you bring up revolutions, which I think is correct, on the other side of that may very well be RE prices that are forever depressed.

Digital currencies and tokenization is going to make certain types of real estate a good investment. Utilities too.

 

[engineering]

I think its like you say, extend and pretend

Exactly. I've seen reports of owners rewriting leases to roll back rent into future rent. This allows them to claim their tenants on a property are current.

Think of 2008. How long did they pretended everything was fine?
Remember how even the ratings agencies were compromised and in the end faced no real punishment?

I think the name of the game right now is to keep their losses as unrealized losses. What are bank reserve requirements right now 0%?
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
So instead they keep operating as long as they can. If their books balance out to $1 in the black, the keep going even if they're in reality already bankrupt based on the actual market value of their property.

Say they bought a building for $100 million that is now only worth $10 million if they sell it. Why sell it?
Furthermore, even if they default in paying taxes, will the local government actually do anything? If they seize to property and sell it for $10 million now all the other properties are going to want their assessment lowered and their tax receipts will fall off a cliff.

It seems everyone in a position to force action is incentivized to extend and pretend.

 

[Slow Learning Elf]

I don’t foresee the job market ever again being like it was in 2008, to say nothing of even worse prior recessions. Demographics mean that labor is going to be in short supply both locally (in many countries) and in the world as a whole for the remainder of our lives, at least.

It seems that labor market is tight for jobs that aren't very desrable, e.g. service jobs. Abundance of home care jobs does not say much about how hard it is to find a position as a computer programmer or loan officer. Both anecdotally and per Fred it seems that job market for the middle class jobs is much tighter and the employers can now dictate terms (e.g. RTO or else).

 

[Slow Learning Elf]

many of us bitcoiners think

If I had to find an asset class that is the least likely to suffer should bitcoin become a major store of value, it would be at the back of the queue. Real estate has real world yield, is naturally inflation-indexed and has been an investment product (arguably) longer than gold. Like @Sergio123 said, if anything, CRE will benefit from tokenization and adoption of blockchain for transaction management.

 

[NoahA]

If I had to find an asset class that is the least likely to suffer should bitcoin become a major store of value, it would be at the back of the queue. Real estate has real world yield, is naturally inflation-indexed and has been an investment product (arguably) longer than gold. Like @Sergio123 said, if anything, CRE will benefit from tokenization and adoption of blockchain for transaction management.

I just don't see any point in tokenizing something that exists in the real world. I mean who cares if you have a token for a property if possession is 9/10ths of the law as they say. The squatter who is living in your property has all the rights, never mind if you have a token. Tokens only work in the real of digital things in my opinion.

RE has only benefited because of how much value fiat currency is losing. Plus, it helps that government policy is doing everything it can to crush regular people with so much regulation. Costs to maintain properties are very high, as are things like property taxes and insurance. When the property doesn't appreciate at the level that is has over the past 10 to 15 years, also of course given the zero interest rate policy, then all the benefits that RE has had begin to evaporate.

RE will of course be better than holding cash, and it is a very local thing in terms of the viability of being a RE investor, but I really do believe that over the next few decades, RE will suffer.

 

[Slow Learning Elf]

I just don't see any point in tokenizing something that exists in the real world. I mean who cares if you have a token for a property if possession is 9/10ths of the law as they say. The squatter who is living in your property has all the rights, never mind if you have a token. Tokens only work in the real of digital things in my opinion.

In the real world (you know, where humans live) property transactions include things like title transfers which can be aided by the block chain to ensure provenance. In the real world you also have property rights that are enforced by the law (while everyone reads about one or two cases of extreme squatter rights and think that that's the reality). Personally, I am more worried about losing the key to my digital wallet (digital world risk) than I am about my tenant deciding that he'll steal the apartment (perceived real world risk).

As for real estate value transferring to crypto, it sounds like a heavy case of wishful thinking. If you live in a single-asset world, you will find good reasons why everything else sucks and good reasons why your asset is the only one. In the real world, you want a diversified set of assets with different properties. In that mix you'd want things that will produce cashflow (bitcoin does not) and that are unlikely to get prohibited by the government (crypto might) etc. Most importantly, you want some of these assets to have history of acceptance longer than a decade and want it to have intrinsic value that's hard to reproduce. A new coin like Solana might completely replace BTC because it's better/faster/smarter, but nobody can create another Manhattan or Notting Hill out of thin air.

 

[Sergio123]

And no matter if its Solana or bitcoin or whatever else....its all going to require computational power.

 

[punktrader]

This article is from two days ago
https://www.seattletimes.com/busine...estate-credit-crunch-theres-a-tsunami-coming/

“Compared with the savings and loans crisis and 2008, we’re still in the first or second innings” when it comes to troubled assets, said Rebel Cole, a finance professor at Florida Atlantic University who also advises Oaktree Capital Management. “There’s a tsunami coming and the waters are pulling out from the beach.”

This commercial real estate cycle is moving glacially slow but there is no avoiding a credit crunch. We are use to 3 minute pop songs for musical chairs but this is a game of musical chairs to some 13 minute long prog rock epic. One of those songs that goes on and on.

I think its like you say, extend and pretend. Right now, it seems like banks are going down, and that will all be papered over. Many properties have already sold for fractions, and those people had to take a steep haircut. But I believe its just getting started. RE going forward is a dead investment if you ask me, both commercial and residential. 40 years of dropping rates has meant a one sided market, and now the next few decades will be the opposite. The need for CRE is so much smaller in this new economy and technological era. Its like the need for CDs, DVDs, and even hard drives. First 2 are totally gone, and third has been replaced by SSDs.

 

[NoahA]

In the real world (you know, where humans live) property transactions include things like title transfers which can be aided by the block chain to ensure provenance.

That's fair. A public ledger would be useful in this case.

Personally, I am more worried about losing the key to my digital wallet (digital world risk) than I am about my tenant deciding that he'll steal the apartment (perceived real world risk).

This is also true. But it would be a very good reason for why its ridiculous to put a house deed on the blockchain when its possible to lose it with no way to get it back. Most things do not actually need a blockchain. If its possible for someone to "fix" any problems, then a centralized authority is in fact how it works. There is simply no need for a decentralized blockchain for most applications.

In the real world, you want a diversified set of assets with different properties.

I agree. And everyone should own a home. But the home shouldn't cost an arm and a leg and push you into a lifetime of debt. If the home appreciates more in value than what you can make from working, there is clearly a problem. RE will drop down to the cost of utility, and that is far below where it is now in most places. Then it will be good to own a home, but don't expect it to rise in value again, and RE investors should realize that all the work and money you put into a house is only for your benefit, not something that you can pass onto the next buyer with your profit tacked on.

In that mix you'd want things that will produce cashflow (bitcoin does not)

Cashflow sounds nice, but a common phrase in bitcoin is that holding dollars gives you yield because its a depreciating asset. You don't need yield for a product that will over the long run gain in value. Savings shouldn't wither away to nothing if they aren't invested because nobody should be forced to take investment risks if all they want to do is save.

Most importantly, you want some of these assets to have history of acceptance longer than a decade and want it to have intrinsic value that's hard to reproduce.

Everyone is welcome to wait when bitcoin goes even more mainstream. But then what will the price be?

Solana might completely replace BTC because it's better/faster/smarter, but nobody can create another Manhattan or Notting Hill out of thin air.

You need to learn more about what makes bitcoin special. There is no current competitor that comes close, and there likely will never be. A competitor would have to be fully decentralized, which you can only do in the beginning when it grows slowly and nobody cares. There can't be any pre-mining, and there also can't be any benefits to the original creator. Its simply impossible to re-create the conditions for the inception of bitcoin and the first few pivotal years while it grew. Before it gets big enough, its open to attack, so it needs time to grow before anyone really cares. How are you going to do that today? In the end, you realize that you're just better off using the bitcoin that already exists rather than trying to make a new and better one. Future changes to bitcoin can be implemented if there is enough consensus for it.