CRE

legedu

Yes. I look at CRE deals all day... The amount of deals that won't pencil at a 5%+ 5 year yield is very, very high. People with leverage who were trying to survive until rates went down are going to get crushed. A lot of equity and debt is about to be destroyed. The question, this time, is will people by treasuries as a safe haven... or something else?

TheBlueStare

It’s not just the national debt. It’s all debt. Mortgage rates would be ridiculous. Corporate debt. CRE debt. All the planned AI build out borrowing. 

OftenOlives

If not AI, not yields, not CRE (thanks regionals), but oil makes this economy fall off the knifes edge I'll be so annoyed. We have so much of the stuff, this is stupid.

IntuitMaks

FRED charts the tightening standards for commercial and industrial loans. I can’t remember where I read about the CRE lending increasing, but it’s been happening this year, and there are reports of lenders keeping credit flowing despite the obvious risks. The fervent pursuit of greed is clouding a lot of peoples’ judgment right now, in my opinion.

JuanPabloElTres

Curious, how do you know commerical lending standards are getting more lax? As you mention, and. I agree, it seems like banks would be tightening given the issues with the CRE office market and business development loan companies being given a discount by the market.

IntuitMaks

Commercial lending standards have been loosening quite a bit the last couple years. When banks issue new loans, they are injecting new money into the economy and increasing M2. Banks are increasing their risks as the economy cools. It doesn’t make a lot of sense what they’re doing, but it’s happening. They are actively undermining the Fed. They have even been loosening standards on CRE loans this year, which is kind of insane considering how that market has been. Increasing lending while the economy slows is one of the worst macroeconomic dynamics you can put into play. The end result is typically a wave of defaults and a long, drawn out crash. It makes even less sense what they’re doing when you consider that banks are still keeping consumer lending tight, yet handing out billions in loans to commercial borrowers (who are ultimately going to rely on the now cash-strapped consumers). Eventually, the outcome will be disastrous.

unknowncurator88

CRE is going nuts with news of clients increased yoy

qila_capital

Have you looked at CRE at all? Hospitality might be worth adding to the comparison. A hotel is basically an operating business sitting on top of real estate, so the investment thesis can be pretty different from either a dividend stock or a pure growth stock. The interesting part is figuring out whether the added complexity is worth it.

No_Presentation9490

I mean if you're not actively managing then sure. Financials running up 60% in share price in 1 year from interest rates being high is definitely a sell into strength moment for me considering banks have so much unrealized CRE/bond losses

Character_Ad_1485

The 30-year is the right thing to be watching. The Fed controls the short end but the long end reflects what the market thinks about growth, inflation, and the supply of Treasuries over the next few decades. Right now all three of those are pointing up, and one 25bp move from the Fed barely registers against that. The mortgage market is probably the clearest place to see this play out. Rates are already making new home purchases nearly impossible for a lot of buyers and refi volume is dead. That affects housing starts, which affects lumber, appliances, everything downstream. That transmission doesn't need September's meeting to happen, it's already happening. On banks you're right to be uncertain. Net interest margin expands on a steeper curve in theory but it depends heavily on deposit beta and loan quality. Regional banks with commercial real estate exposure are the ones I'd watch most closely. Office CRE refinancing into a 5%+ environment is a real problem that hasn't fully shown up in earnings yet. REITs are more straightforward. When risk-free rates are at 5.23% the yield premium you need to hold a REIT compresses the valuations pretty mechanically. The ones with floating rate debt and near-term refinancing needs are in the tightest spot.

Commercial_DataFarm

Youre onto something real but slightly miscalibrated on which yield matters. The Fed sets the overnight rate; the 30Y reflects the markets guess at the average path of short rates over 30 years plus term premium. So the September hike matters mostly as a signal about that path, not mechanically a single 25bp at the front does almost nothing to a 30Y at 5.2%. Whats actually driving the long end is term premium coming back: heavy Treasury supply, QT, less price insensitive foreign/central bank demand, and deficit concern. That’s the thing to watch, not the dot plot. Where Id push back: most real economy borrowing costs don’t key off the 30Y. Mortgages track the 10Y plus the MBS spread. Corporate refinancing clusters in the 5 to 10Y belly. The 30Y mostly matters for genuinely long duration liabilities pensions, life insurers, ultra long corporate/muni issuance. So for mortgages, REITs, indebted companies, you want to watch the 10Y and the belly more than the long bond. If long rates broadly stay 5%+ for another year, hardest hit are the long duration and refiwall names: CRE and the REITs with near-term maturities and compressed cap rates, unprofitable long-duration growth (it’s a DCF denominator problem), and leveraged/junk credit rolling into much higher coupons. On banks youre right to be unsure, because it cuts both ways. A bear steepener helps NIM on new loans, but the same move marks down their AOCI/HTM bond books (the SVB problem), deposit betas climb as they compete for funding, and credit on weaker borrowers/CRE deteriorates. Money center banks weather it; smaller regionals with CRE concentration and underwater securities are where the stress shows up. Short version: it’s less “does the hike matter” and more “why is term premium back” and the 10Y/belly plus credit spreads are cleaner tells than the 30Y alone.

WaltzZealousideal829

Anyone have info on these  EBDL, GMM, CRE