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Biggest Commercial Real Estate Collapse in History?

Current Events Real Estate

The Commercial Real Estate Collapse: A $20 Trillion Asset Class on the Brink

The commercial real estate market is facing a significant crisis. As a $20 trillion asset class, it is already showing signs of collapsing, and industry experts anticipate that the situation will only worsen over time.

Through this article, we dive into the current state of the commercial real estate market, identify the factors responsible for its decline, and provide actionable insights to safeguard yourself in these turbulent times.

For a comprehensive understanding of the commercial real estate market collapse, we recommend watching George Gammon's detailed analysis in the whiteboard video above.

The Current State of the Commercial Real Estate Market

Commercial real estate is currently facing two major challenges, which have led to a significant drop in its value. These challenges include a slowdown in economic conditions and the shift to remote work.

According to Moody's analysts, nearly a third of office buildings in the top 80 metros are now considered “obsolete.”

Furthermore, the vacancy rates in downtown offices are alarmingly high, with some areas reporting rates over 80%.

During the Global Financial Crisis (GFC), vacancy rates peaked at 14%, but today they are exceeding 18%. Unfortunately, this trend is expected to persist as remote work arrangements continue to surge.

As the commercial real estate market collapses, revenue is rapidly declining. This trend is concerning as vacancy rates are unlikely to return to their historic norm. This situation is expected to remain challenging for the foreseeable future.

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Factors Contributing to the Commercial Real Estate Collapse

Over the past year and a half, interest rates have increased significantly.

As a result, building owners who took out loans at lower rates now face the challenge of rolling over their debt at much higher rates ranging from 5-8%. This will undoubtedly lead to a decrease in net revenue.

The situation is further complicated by increasing cap rates as interest rates in other assets, such as 10-year treasuries, are also going up.

Thus, buying a building with a 4% yield may not make sense if the 10-year Treasury yield is nearly the same return on investment.

Adding to the concern is the current situation with mortgage-backed securities, specifically commercial mortgage-backed securities (CMBS).

These securities are experiencing a significant risk of default, with triple-B CMBS spread over 10-year treasuries having increased to over 10%.

With commercial real estate worth $20 trillion compared to $35 trillion for residential real estate, a collapse in the commercial real estate market would be catastrophic.

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What Can You Do to Protect Yourself in This Tumultuous Time?

Unfortunately, this is a long-term problem that will likely play out over the next couple of years.

However, there are things that you can do to protect yourself. First and foremost, own physical gold.

This is the easiest thing you can do in an inflationary environment. Second, it is crucial to have a cash position in your portfolio.

The bigger the crisis, the bigger the opportunity, and this is where you can take advantage of a long-term supercycle in commodities.

You can also attend investment conferences like Rebel Capitalist Live, which will feature speakers like Mike Maloney, Peter Schiff, and Brent Johnson, among others, who will provide insights on how to not only protect yourself but profit and see opportunities where others see a crisis.

Final Thoughts

The commercial real estate collapse is a concerning trend that is likely to continue. While it is a long-term problem, there are things that you can do to protect yourself.

Owning physical gold, maintaining a cash position in your portfolio, and attending investment conferences can help you weather the storm.

Remember, the bigger the crisis, the bigger the opportunity.

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