Suburban homeowners near major cities are receiving multiple offers on their homes, many above the listing price. Urban dwellers eager to leave cities such as New York and San Francisco are driving the trend. But as these newly-minted telecommuters set up shop out in the ‘burbs, they’re leaving behind huge commercial buildings now devoid of workers.
Institutional real estate investors bet against housing in 2008, then hotels earlier this year, and now are turning their sights onto commercial property. It looks like it’s going to get ugly.
Just over 1,200 real estate deals were recorded in New York in the first half of the year for $10.5 billion, that’s down 32% in volume and 54% in the monies paid compared to the first half of 2019. Apartment buildings were crushed, with prices down 50% on average. Hotels followed, down 37%, and office buildings dropped 28%. Retail space was flat, but there’s no telling how long that can last.
James Whelan, president of the Real Estate Board of New York, said:
“We continue to see the devastating and long-lasting impacts the pandemic has had on the health and stability of the New York economy.”
There are billions of dollars’ worth of corporate bonds outstanding that are backed by urban real estate. Falling prices and fewer tenants aren’t a good combination. This will lead to tenants demanding much lower rent, which will reduce cash flow to building owners and put the bonds in jeopardy, which could lead to a meltdown in the commercial real estate bond market.
By the way, pensions own a lot of bonds backed by real estate, which could make for interesting times for state pensions and state finances.