A weekend topic starting with the Telegraph. "The underlying crisis in the banking system continues to deepen as $5 trillion of commercial real estate debt taken out during the zero-rate era comes due in tranches. 'It’s not a liquidity problem; it’s a solvency problem,' said Professor Tomasz Piskorski, a banking specialist at Columbia University, and one of the lead authors. 'Temporary measures have calmed the market but half of all US banks are running short of deposits with assets worth less than their liabilities, and we are talking about $9 trillion. They are bleeding capital and could not survive if something triggers a sudden loss of confidence. It is a very fragile situation and the Federal Reserve is watching it closely.'"

"'The entire commercial real estate space has to be reset. No one really knows where the values are,' said Scott Rechler, chairman of Long Island developer RXR and a board member of the New York Fed. Trophy buildings in prime spots are holding up but he is purging 'B' and 'C' grade blocs from his portfolio. They are no longer viable in the post-Covid world of hybrid working. 'It’s stuff that’s competitively obsolete: side-streets, dark buildings. You can’t give them away,' he said."

From Bloomberg. "Soaring rents and cheap funding made blocks of US rental apartments seem like a 'can’t miss' investment during the pandemic. More than $1 trillion of multifamily debt is due to mature through 2028, according to data compiled by Trepp, potentially leading to increased defaults and losses for banks and bondholders. 'I expect a great deal of pain in multifamily as we adjust to a higher interest rate environment along with a lot more supply hitting the market in 2024,' said Daniel McNamara, founder of hedge fund Polpo Capital, which is betting against commercial mortgage bonds."

"'There were a few unprofessional people getting over their skis,' said Jim Costello, chief economist at the data provider, regarding borrowers. While stories about the problems those debtors run into will dominate headlines this year, current price declines are bringing values back to pre-pandemic trend levels, he said."

The Denver Post in Colorado. "Commercial real estate represents an anchor that is likely to only grow heavier in the months ahead as apartments join office space in stressing banks and weighing on the larger economy. 'Office is a four-letter word right now,' said Marcel Arsenault, CEO and founder of Louisville-based Real Capital Solutions. The share of available office space in downtown Denver crossed 30% in the third quarter, marking the highest vacancy levels since 1990 when the state was coping with a severe energy bust. Metro Denver has about 120,000 new apartment units on the drawing board. Roughly 48,000 of those units are under construction. Research firm Capital Economics predicts office building prices could fall another 20% on average, bringing the peak-to-trough decline to around 43%. That is an average, for the market as a whole. Some buildings are effectively worthless."

Axios on Florida. "Miami's rental market 'is slowly cooling down' after a blistering hot year, according to Zumper. Rents for one-bedrooms fell 14.4% in Sunny Isles Beach and two-bedrooms fell 14.5% in Aventura and 10.4% in North Miami, the Miami Herald reported in December. Anyone moving into a new rental over the next six months will have more bargaining power as property owners trying to fill new builds will offer move-in deals, Zumper's report predicts. 'Eventually, they'll have no choice but to cut asking rents,' it says."

KSL in Utah. "The controversy over the incomplete five-story apartment building facing demolition on Historic 25th Street in Ogden is now in court. Developer Summa Terra Ventures filed a lawsuit against the contractor that was handling the project, Makers Line, seeking at least $9.7 million in damages. The new lawsuit adds to 'a growing list' of alleged legal problems involving Makers Line and its affiliates stemming from projects around the state, according to Building Salt Lake. Ultimately, Ogden officials ordered a stop to work in late March last year, initially because wood used to build the structure wasn't sufficiently fire resistant. Later, city officials deemed the building dangerous after finding additional 'structural deficiencies' and Summa Terra Ventures decided last month to tear down the building. Demolition is ongoing."

The Waco Tribune in Texas. "How many rooms are too many? Some established hoteliers are raising the question as plans advance for some 1,200 new hotel rooms in the Waco market. 'I do not think our occupancy rates will remain at the same historical highs we have seen with the addition of new supply that is currently slated,' said Hotelier Kary Lalani, president and CEO of Lalani Lodging. 'We are already seeing a softening in the market on the occupancy side, and this will only be magnified with the additional rooms coming online. In light of this, yes, we are very concerned with the notion of over-saturation. A market our size can only absorb so many rooms at once.' Lalani said Waco could suffer problems of its own making. 'What is even more frustrating is that a lot of these issues are self-inflicted given the city’s approach to public incentives to most of these new hotels coming downtown,' said Lalani, whose Waco portfolio includes Hilton Garden Inn and Homewood Suites by Hilton, both at Legends Crossing."

Bisnow Washington DC. "The weeks before and after the New Year's ball dropped have seen a plunge in D.C. office values, with a series of older properties trading hands at steep discounts. The latest deal comes in at less than a third of its 2017 sale price. TA Realty sold a 13-story office building near the McPherson Square Metro station to Melrose Solomon for $18.2M, according to documents posted Thursday to the D.C. Recorder of Deeds. TA Realty declined to comment. Boston-based TA Realty had purchased the property at 1101 14th St. NW for $61.75M from American Realty Advisors at the end of 2017."

Bisnow Chicago in Illinois. "An investor purchased a distressed office building across the street from the Willis Tower for an 89% discount compared to the property’s value a little over a decade ago, one of the most dramatic examples to date of a downtown Chicago office building bleeding value. A venture of locally based Igor Gabal snagged leasehold interest in the property for $4M, a $34M drop from the building’s appraised value of $38M when it sold in 2012, according to Crain’s Chicago Business. The 12-story building at 300 W. Adams St. sold for slightly less than $16 per SF, a depressing data point for owners trying to offload distressed office buildings."

San Diego News in California. "Record lows in San Diego’s industrial market: Kidder Matthews Quarter 4 report had some major findings about San Diego’s economy, including that leasing volume dropped to a new 15-year low of 1.8 million square feet (SF) while rental prices are at a record high of $1.59/SF NNN. Meanwhile, sale prices fell 27% YOY to $286/SF. Concurrently, sublease availability reached a historical high, almost a quarter of the total available inventory. This uptick can be partly attributed to Amazon giving back approximately 600K SF since 2022."

The Real Deal on California. "Top prices for Los Angeles multifamily properties in 2023 couldn’t compare with the previous year. A $125 million sale topped the 2023 list, about four times less than the $504 million trade which led the 2022 parade of priciest multifamily deals. Multifamily headlines didn’t bring in much cheer during the year. The average sales price for a residential unit in Los Angeles dropped by 19.4 percent, according to a NAI Capital study released in April. Eric Sussman, professor at the UCLA Ziman Center for Real Estate, placed most of the blame for the bearish market on skyrocketing interest rates. 'It really put a kibosh on deals,' Sussman said. 'It was quicksand last year. It was dead while everyone tried to figure out interest rates, politics and the economy.'"

Hoodline in California. "San Francisco's retail scene takes another hit as the Adidas store prepares to close its doors in the city's largest mall. Located on Market Street at the beleaguered San Francisco Centre, the sports apparel giant is throwing in the towel with a final liquidation sale slashing prices in half, as per SFist. Struggling with a downturn that has already seen key players like Nordstrom and the Cinemark movie theater exit stage left, the mall is grappling with vacancies that challenge its future viability. The San Francisco Centre, formerly known as the Westfield San Francisco Centre, lost its dazzle after defaulting on a $558 million mortgage last year. While smaller businesses and Bloomingdale's cling on, the mall's occupancy is teetering at half."

The Mercury News in California. "A big and empty San Jose office building that has tumbled into neglect — including a defunct fire alarm system — faces receivership and a loan foreclosure as the Bay Area’s commercial property woes worsen. The office building, located at 3100 North First Street, is in default on its loan and could be seized by its lender, according to documents filed on Jan. 4 with the Santa Clara County Recorder’s Office. The default problems that confront the building, which totals 99,400 square feet, provide fresh evidence that financial woes continue to jolt the Bay Area office market in the wake of the coronavirus outbreak. Santa Monica-based Vista Investment Group owns the building, which at one point was leased to Nio USA, a unit of a China-based maker of electric vehicles. The building is currently empty. Nio vacated the building in October 2023, according to documents on file at the San Francisco County Superior Court."

"When told by Nio USA that it wouldn’t be continuing as a tenant, Vista Investment Group distributed $2 million in rent to the real estate firm’s equity investors and affiliates, according to the San Francisco county court records. This decision by Vista Investment Group 'clearly impacted on the borrower’s ability to now pay for these essential services which are necessary to protect and preserve the property,' representatives of East West Bank stated in the court records, referring to the stuck elevator and the difficulties with the fire, burglar alarm and other systems."

The Canadian Press. "It’s poised to be another challenging year for office real estate investment trusts, but some money managers say there could be decent entry points in the sector for long-term investors. 'We are in a 'darkest before dawn' scenario heading into 2024 for office REITs — there is no denying they are cheap … but there are numerous headwinds that office landlords face,' said Michael McNabb, portfolio manager at Purpose Investments Inc. 'I think a lot of investors forget that this was the hottest REIT asset class heading into 2020,' he said, when office vacancy rates were extremely tight and investors flocked to the sector for its monthly payouts. Units in Slate Office REIT, Allied Properties REIT, True North Commercial REIT and Dream Office REIT are all down between 62 and 85 per cent since March 1, 2020."

"McNabb said he’s still very cautious on the sector and wants to see vacancy rates improve. But he believes longer-term investors could start 'picking away' at higher-quality companies, which could prove to be a good investment in time. 'Commercial real estate follows the simple economic rule of supply and demand … and currently supply is outstripping demand by a very wide margin,' McNabb said."

The Globe and Mail in Canada. "When it comes to downtown Toronto office buildings, class A is no longer getting an A grade from tenants. The latest research shows that older class A office buildings now have as much empty space as class C buildings as demand for downtown offices has declined and a raft of new class A skyscrapers have opened. 'You can be an iconic tower, but what the tenants are all saying is they want the newer stuff,' said Carl Gomez, chief economist with CoStar Group, a commercial real estate firm. 'The newer stuff has all the low vacancy. Everything else that is older has double-digit vacancy.'"

The Irish Independent. "Investors and commercial property agents are expecting that the recent fall in property values will bottom out in 2024 and thus present buying opportunities and generate activity. However, agents are reluctant to say how much further values may fall. According to agents JLL, office values fell 20.3pc in the 12 months to the end of September while industrial values fell 6.2pc and retail 5pc over the same period. Those falls across all sectors were sparked by rising interest rates and the difficulty experienced by investors in raising funding. Declan O’Reilly, of Knight Frank acknowledges that office values will 'face a challenging first half' as price discovery will remain an issue and 'we are likely to see an increase in receivership sales.'"

The Times of Malta. "The earliest-known real estate crisis is documented in the Old Testament, a high-rise in the city of Babel. We don’t know what the Babel Tower looked like, of course. But according to pictorial representations of Pieter Bruegel the Elder, whose two 16th-century paintings of the abandoned undertaking can be admired in the Kunsthistorisches Museum, Vienna, the abandoned construction site was a total mess. The project was an exercise of hubris from the very beginning: vast, sky-high, useless, and unsuited to its surrounding. It was a vanity project without a sound business plan, not taking account of possibly ruinous risks."

"While we try hard to challenge Him, we don’t suffer the wrath of God in Malta yet. But we can see a modern-day Babel in the German city of Hamburg: the Elbtower. Planned to be the highest building in Hamburg and – with 245 metres – the third-highest in Germany, the cranes stopped at 100 metres now, on the 25th floor. The continuation could not be financed anymore. The workers went home, bemoaning their plight in many different languages."

"Real estate, particularly commercial real estate (CRE), is in trouble all over the world. The reasons are multi-fold, as I will soon explain. But the main reason is inflation. Calculated profits evaporated. The burden of CRE credit, no matter how well-secured, became unbearable for borrowers and lenders alike. Property valuations started to melt as the servicing of loans started to exceed achievable rents."

"A good, example for value-destroying over-supply are Chinese apartment buildings. For many years, Chinese residential real estate developers were seen by the CCP as engines of growth. Cheap loans, cheap land and the political will to swamp the country with cranes for the sake of economic expansion produced nothing but vast suburbs of empty apartment blocks all over the country. Nobody wanted to live in them, but they were gobbled up by retail savers in the belief that housing will always boom. Now valuations came crushing down. The construction behemoths pampered for a long time are going bust one after the other. Retail investors, often invested in not-yet-built and now never-to-be-built apartments, lost big time."

"The warning signs are flashing red all over Europe and the rest of the world. In major cities like London, up to 40 per cent of the available office space remains empty. We Work, until recently one of the biggest landlords outside China, went bust. Its business concept, to lease long term and to let out short term on a vast scale, was a rental gamble turned awry. This will force banks to book loss provisions and to tighten lending standards. They will refuse to throw good money after bad. Developers in need of fresh credit and capital will sit high and dry, and the banks will end up with secured property nobody wants. It is one thing to mortgage the Elbtower. It is an entirely different matter when you end up owning an unfinished Tower of Babel nobody wants to complete."