Commercial Real Estate

The U.S. Has Lost More Than 110,000 Restaurants, Setting The Stage For A Commercial Real Estate Collapse Of Epic Proportions

The restaurant industry is in the midst of a complete and total meltdown that is unlike anything that we have ever seen before.  If you ask Google how many restaurants there are in the United States, it will tell you that there are 660,755, although that number is a few years old.  But for the purposes of this article, that is a good enough estimate.  Americans love to eat out, and restaurant workers are some of the hardest working people in the entire country.  So it is incredibly sad to see more restaurants constantly going under.  In some cases, restaurants that have served their communities for decades are deciding to permanently close their doors.  For example, over the weekend Sammy’s Roumanian Steakhouse in New York City announced that it had finally reached the end of the road…

Landmark New York City restaurant Sammy’s Roumanian Steakhouse has closed its iconic basement-level doors as the coronavirus pandemic continues to cripple the restaurant industry.

The Lower East Side fixture was famous for its latkes spreads, chopped liver, and vodka bottles frozen in blocks of ice and was known as a boisterous party spot frequented by celebrities.

Unfortunately, Sammy’s is far from alone.

In fact, in a recent article that he penned for Fox Business, Adam Piper lamented the fact that more than 100,000 U.S. restaurants have gone out of business during this pandemic…

State and local governments have wielded the coronavirus pandemic as license to steal freedom and opportunity in pursuit of unprecedented omnipotence. Unreasonable, unnecessary and hypocritical actions have forced over 100,000 restaurants to close and endanger countless others.

And according to Bloomberg, the true number of dead restaurants is now over 110,000…

More than 110,000 restaurants have closed permanently or long-term across the country as the industry grapples with the devastating impact of the Covid-19 pandemic.

Just think about that.

More than one out of every six restaurants in the U.S. is already gone, and the National Restaurant Association is warning that there will be more carnage in the months ahead because the industry is in “an economic free fall”…

“The restaurant industry simply cannot wait for relief any longer,” Sean Kennedy, executive vice president of public affairs at the association, said in a letter to Congress. “What these findings make clear is that more than 500,000 restaurants of every business type — franchise, chain and independent — are in an economic free fall.”

This is what an economic depression looks like.

With tens of thousands of restaurants sitting empty, and with tens of thousands of others not paying rent, the stage has been set for a commercial real estate disaster of unprecedented scope and size.

Of course there are millions of square feet of office space and retail space that are not being productive right now as well.  In a recent article, Lee Adler referred to this looming commercial real estate nightmare as “a monster in the room”…

I think that if there’s anything that illustrates the head in the sand problem of the banks, it’s this. Commercial real estate (CRE) finance. There’s a monster in the room. All that empty space. No longer income producing.

For now, big financial institutions are doing their best to hide their coming losses, but according to Adler for certain sectors the losses will simply be unavoidable…

Multifamily will take a haircut but will survive. My guess is that industrial, while overpriced and overvalued, will produce enough income to get by. Office and retail? Kiss it goodbye. It’s done. Over. Kaput.

Sadly, he is right on target.

The coming commercial real estate crisis is going to make the subprime mortgage meltdown of 2008 and 2009 look like a Sunday picnic.

And the longer this pandemic stretches on, the larger the losses will ultimately become.

For residential real estate, the big story is that hordes of Americans are fleeing both coasts and are moving to smaller communities in the middle of the country.

So even as housing prices drop substantially in major cities on the east coast and the west coast, they are rising rapidly in cities such as Pittsburgh, Boise and Austin…

Smaller metropolitan markets like Pittsburgh, Cleveland, Cincinnati, Indianapolis, Kansas City, Boise, Idaho, Austin, Texas, and Memphis, Tennessee are seeing some of the strongest price gains in the nation now, according to the Federal Housing Finance Agency. Prices in those cities are now at least 10% higher than with a year earlier.

And as I discussed yesterday, we are actually starting to see hyperinflation for high end properties in desirable rural and suburban areas of the country.

Just recently, a friend sold a home that is located not too far from us for a price that almost made my eyes bug out of my head.  I literally had a difficult time believing the insanely high price that they were able to get, but this is what happens in a hyperinflationary environment.

2020 may have been a “personal financial disaster” for 55 percent of all Americans, but thanks to the hyperinflation in the stock market the wealthy have more money to throw at high end real estate than ever before.

Unfortunately, all of this wild money printing is not going to be able to prevent the coming crash in commercial real estate.

No matter how much money they have, many Americans are simply too afraid of COVID to eat out right now, and that will remain the case for the foreseeable future.

And we are going to continue to see more Americans migrate away from the large cities on both coasts, and more businesses in those core urban areas will continue to fail.

As the commercial real estate crash unfolds, a lot of financial institutions simply won’t be able to make it without government help.

So will the federal government bail them out?

You never know, but every dollar the federal government borrows and spends just makes our long-term problems even worse.

All of the dominoes are starting to fall, and we are still in the very early chapters of this horrifying economic collapse.

Unfortunately, most Americans still don’t understand what is happening, and most of them have no idea that economic conditions will soon get even worse.

***Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.***

About the Author: My name is Michael Snyder and my brand new book entitled “Lost Prophecies Of The Future Of America” is now available on Amazon.com.  In addition to my new book, I have written four others that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned)  By purchasing the books you help to support the work that my wife and I are doing, and by giving it to others you help to multiply the impact that we are having on people all over the globe.  I have published thousands of articles on The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe.  I always freely and happily allow others to republish my articles on their own websites, but I also ask that they include this “About the Author” section with each article.  The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions.  I encourage you to follow me on social media on Facebook, Twitter and Parler, and any way that you can share these articles with others is a great help.  During these very challenging times, people will need hope more than ever before, and it is our goal to share the gospel of Jesus Christ with as many people as we possibly can.

Is The United States Headed For A Commercial Real Estate Crash Of Unprecedented Magnitude?

Will commercial real estate be the next shoe to drop in the ongoing U.S. financial crisis?  While most eyes are on the continuing residential real estate disaster, the reality is that the state of the commercial real estate market in America could soon be even worse.  Very few financial pundits are talking about this looming disaster but they should be.  The truth is that U.S. commercial property values are down approximately 40 percent since the peak in 2007 and currently approximately 18 percent of all office space in the United States is now sitting vacant.  That qualifies as a complete and total mess, but the reality is that the commercial real estate crisis is just starting.

In fact, the commercial real estate market is likely to get a whole lot worse.  It is being projected that the largest commercial real estate loan losses will be experienced in 2011 and the years following.  Some analysts are estimating that losses from commercial real estate at U.S. banks alone could reach as high as 200 to 300 billion dollars.  To get an idea of how rapidly the commercial real estate market is unraveling, just check out the chart below….

Does that look like things are getting better to you?

And unfortunately, all indications are that the commercial real estate market is going to get much worse.

According to Real Capital Analytics, the default rate for commercial property mortgages held by all U.S. banks more than doubled in the fourth quarter of 2009 and may reach a peak of 5.4 percent by the end of 2011.

But even that estimate may be way too conservative as we shall see in a moment.

According to a recent report by the Congressional Oversight Panel, approximately 3,000 U.S. banks are currently classified as having a risky concentration of commercial real estate loans.  All of them are small to mid-size banks which have been already severely weakened by the recent financial crisis.

So could the crisis in the commercial real estate market lead to a massive wave of failures among small and mid-size banks?

Count on it.

In fact, the FDIC has acknowledged that the number of banks on its “problem” list climbed to 702 at the end of 2009.  To get an idea of just how bad that is, keep in mind that only 552 banks that were on the problem list at the end of September 2009, and only 252 banks that were on the problem list at the end of 2008.

Are you starting to get the picture?

So how are banks responding to this commercial real estate quagmire?

They are rapidly raising loan standards and they are dramatically reducing the number of loans they are making.

Just a few years ago, the number of commercial real estate loans was exploding, but now the bubble has burst, and as the chart below reveals, commercial real estate lending has absolutely fallen off the map….

What is making things even worse is that owners of commercial real estate are starting to walk away from properties that are heavily “underwater” just as many residential homeowners have been doing.  This has caused default rates to start shooting through the roof.

One of the latest and most high profile commercial property owners to do this is Vornado Realty Trust.  Earlier this month Vornado indicated that it would walk away from two heavily underwater loans totaling $235 million.

In the past commercial property owners would be very hesitant to do such a thing, but the reality is that the stigma has faded for these kind of “strategic defaults”.  Just as with residential real estate, these kinds of defaults have almost become accepted practice now.

The number of defaults is likely to skyrocket even further with so many commercial real estate loans scheduled to rollover in the next few years.

You see, commercial real estate properties typically carry mortgages with lives of 5 to 10 years.  A vast array of commercial real estate loans made between 2000 and 2005 are coming up for a rollover, but because credit standards have tightened, borrowers may find that they simply do not qualify for refinancing.

In fact, a report entitled “Commercial Real Estate at the Precipice” estimates that even under lenient lending standards, approximately 57 percent of existing commercial real estate mortgages will not qualify for refinancing.

That is a nightmare.

But if you apply more conservative lending standards, it is estimated that almost two-thirds of all commercial real estate borrowers will not qualify for a rollover.

So what is going to happen to the U.S. commercial real estate market when large numbers of borrowers start walking away from their “underwater” loans and about half of those who want to rollover their loans don’t qualify for refinancing?

What do you think that is going to do to commercial real estate prices?

Somebody better do something, because both the commercial and the residential real estate markets in the U.S. face a crisis of unprecedented magnitude.

But most Americans still have no idea that the great economic machine that their forefathers built is falling to pieces all around them.  They would rather numb the pain by watching the latest episode of American Idol or by catching up on the latest round of celebrity gossip.

But that is not going to stop what is about to happen.

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15 Reasons Why Barack Obama’s Declaration That “A Second Depression Is No Longer A Possibility” Is Dead Wrong

Is the United States economy headed for another Great Depression?  Well, according to Barack Obama, that is no longer possible.  According to Obama, the United States has avoided an economic collapse and is headed for another wonderful era of growth and prosperity.  But is Obama right?  Do the economic signs indicate that the U.S. is headed towards recovery or towards even more difficult times?  As you shall see below, there is no way in the world that Barack Obama should have ever said that “a second depression is no longer a possibility”.  In fact, as the U.S. financial system continues to crumble, it is likely that those words will be exploited by his political adversaries again and again.  If you are a politician and you are going to issue a guarantee, you had better be able to deliver the goods.  In this case, Obama is making a promise that defies all of the economic data.

Video of Obama making his declaration that “a second depression is no longer a possibility” is posted below….      

So why is Obama wrong?  Well, if you want a full examination of why the United States is headed for an economic collapse, please read the rest of this blog.  In this article we just wanted to highlight a few of the reasons why the U.S. is headed for a complete financial meltdown….

#1) The U.S. housing market is continuing to come apart like a 20 dollar suit.  The U.S. government just announced that in January sales of new homes plunged to the lowest level on record.  This is not a sign that the U.S. economy is recovering.

#2) In fact, a lot more houses may be on the market soon.  The number of U.S. mortgages more than 90 days overdue has climbed to 5.1 percent.  An increasing number of Americans find themselves simply unable to keep up with their mortgages.  This is another indication that things are getting worse instead of better.

#3) Over 24% of all homes with mortgages in the United States were underwater as of the end of 2009.  So in other words, nearly one out of every four U.S. homeowners with a mortgage owe more on their homes than the homes are worth.  That is a giant mess, and it is going to be very painful to untangle it.

#4) If all of that wasn’t bad enough, a massive “second wave” of adjustable rate mortgages is scheduled to reset beginning in 2010.  The “first wave” of mortgage resets from 2006 – 2008 absolutely crippled the U.S. housing market, and this second wave threatens to make things far worse.

#5) Confidence among U.S. consumers fell dramatically in February to the lowest level in 10 months.  Consumers that are not confident in the economy tend to hold on to their money.  If consumers don’t spend their money then the economy is not going to grow.

#6) Many analysts are predicting that the next “shoe to fall” in the ongoing financial crisis will be commercial real estate.  U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant. 

#7) In fact, the commercial real estate sector is just now entering the danger zone.  It is projected that the largest commercial real estate loan losses will be experienced in 2011 and the years following.  Some analysts are estimating that losses from commercial real estate at U.S. banks alone could range as high as 200 to 300 billion dollars.  To get an idea of how rapidly commercial real estate loans are turning sour, just check out the chart below….

#8) All of these bad loans are causing banks to dramatically slow down real estate lending.  During the middle of the decade, the number of commercial real estate loans exploded, but now the bubble has burst, and as the chart below reveals, commercial real estate lending has dropped through the floor….

#9) All of these real estate problems are decimating America’s small and mid-size banks.  The FDIC has announced that the number of banks on its “problem” list climbed to 702 at the end of 2009.  This is compared to only 552 banks that were on the problem list at the end of September and only 252 banks that were on the problem list at the end of 2008.  As you can see from these figures, the banking crisis in the U.S. is escalating rapidly.

#10) The U.S. national debt is now over 12 trillion dollars and it is rising at a rate of about 3.8 billion dollars per day.  In fact, some analysts are projecting that the United States will borrow more money in 2010 than the rest of the governments of the world combined.

#11) The financial mess in the U.S. is scaring off other nations from buying U.S. government debt.  In fact, the Federal Reserve now has to “buy” most U.S. government debt because others are extremely hesitant to purchase the massive amount of bad paper the U.S. is trying to sell.  In addition, other countries are now using the massive amounts of U.S. government debt that they already hold as leverage.  A major U.K. newspaper is warning that evidence is mounting that recent Chinese sales of U.S. Treasury bonds are intended as a warning to the United States government rather than simply being part of a routine portfolio shift.

#12) But the U.S. is not the only economy that is suffering during this economic downturn.  The entire world economy has been impacted.  The World Trade Organization has announced that world trade fell by 12% last year as the world economic crisis caused the biggest drop in world trade since 1945.

#13) The United States should not expect the rest of the world to pick up the economic slack either.  The crisis in Greece has made headlines all over the globe recently, and Harvard University Professor Kenneth Rogoff is warning that we could soon see a huge wave of sovereign defaults.

#14) The reality is that things are so bad in some parts of Europe that it could take years and years to recover.  In fact, the chief economist of the International Monetary Fund is warning that financial “belt-tightening” in Europe will be “extremely painful” and could take up to 20 years.  The truth is that if Europe is suffering economically, it will be very difficult for the U.S. to recover at the same time.

#15) In addition, some of the most prominent investors in the world know what is coming and are issuing their own warnings.  For example, Charlie Munger, Warren Buffett’s long-time business partner, has warned in a new article for Slate.com that “it’s basically over” for the U.S. economy.  Marc Faber is warning that things are going to get so bad that it is time for investors to buy farmland and gold.

But apparently Barack Obama knows better. 

Apparently Barack Obama can guarantee that it is impossible for the United States to go into another depression.

Do you believe him?