Oopsie...
Another 'big' building bites the dust...
So let's suppose you borrowed half a billion dollars on a luxury high-rise with all the goodies — multimillion-dollar condos with amazing views, a Ritz-Carlton hotel, prime office space, the works. Now let's also suppose you broke ground on your 35-story tower in 2019, less than a year before COVID and the resulting lockdowns hit.
You might start feeling a little nervous because you borrowed $510 million for a $600 million building — and your creditors would very much like their money back.
Finally, let’s suppose your primo high-rise went up in downtown Portland, just in time for the George Floyd riots — and downtown’s resulting slide into a permanent vegetative state. Business is bad. Very bad. You've sold just a dozen of the 132 luxury condos, leased less than a quarter of the office space, and hardly anybody wants to book a room at the Ritz.
Full article, HERE from PJ Media.
And the same thing is happening in SFO, HERE. I wouldn't be surprised if the same isn't true in NYC, Boston, Philly, and other major blue cities...
The truly sad part is the locals will see their taxes go up to 'cover' the loss of tax base from the fire sale of those buildings, OR the city services will decline due to lack of $$$ to pay for services like fire, police, EMS, etc.
And it is only going to get worse, IMHO. Investors are losing their asses, and there isn't any good news on the horizon any time soon, as far as I can find out.
The same thing is also happening on a much smaller scale with homes where 'investors' were buying rental properties above market value, and now there aren't any renters who can afford them. Also the house flippers are in trouble because they got low rate mortgages planning on flipping the houses to make money before the balloon payment requirement hit. Now...well, sucks to be them...
And we're all seeing our house values (and property taxes) go up to fund services, with some folks seeing a doubling of house value in 10 years or less. But...most of us have very low rate loans, and those are history, plus the nicer houses we might have aspired to get or that 10 acre ranch property with the nicer house are now out of our 'new' price range, even if we could sell at 6-7% mortgage rates.
Best to just hang on to what we have and hunker down... Or at least that is what 'I' am going to do..
Historically, the real estate market behaves much like every other market, evidencing a sine wave appearance over time. Kind of like how the ocean behaves, with tides rising and falling in a predictable pattern. But it seems like we are currently in a situation that precedes a tsunami; the ocean/market is receding dramatically. The question is whether it is going to come roaring back at some point or simply leave us with a lot of exposed shoreline. Like you, I am not inclined to bet on an improvement at any time soon. There has simply been too much destruction of economic value resulting from implementation of "progressive" (i.e., destructive) agendas.
Yes, it's a troubling time in real estate. Frankly it's a mess, and at least part of that is reversion to the mean after a very long time at below historical norms for interest rates. Plus higher than average internal migration from more- to less-expensive locations has been a serious perturbation to local market norms.
One thought ... I don't think it will be locals seeing taxes go up "or" services declining. I think it's going to be "and", and that we're already seeing it.