2023 is shaping up to be a tough year for the CRE and Housing markets as interest rates remain elevated.
When I think of the pension funds that own CMBS debt I shudder. Pension funds that invested in alternative asset classes over the past 20 years will have to mark down their books for the first time in years. Same goes for PE funds. Last week we saw Blackstone (BX) put a gate around investor redemptions – HERE).
The underlying assets of outstanding CMBS debt includes everything from empty office space in Midtown to half empty office parks in the Bay Area to retailers to tanning salons and pizza shops. How many of these underlying businesses will survive 2023 assuming no Fiscal nor Fed bailouts?
How many CRE property owners will survive 2023? I’m especially curious abou the SASB (single asset, single borrower), cohort. What will happen when those underlying properties remain vacant as floating rate SASB loans ratchet higher?
2023 debt maturities. 2023 will be a big year for CRE debt maturities (more than $160 billion in 2023 CRE maturities, see chart below). How many of those borrowers will be in a position to roll over their debt? How many will be forced to sell assets, thereby forcing prices lower?
Housing has another leg down. Wait until owners/borrowers are forced to sell homes and those lower prices start to find their way into sales comp data.
Allow the cycle to play out. Here’s hoping that the Fed will allow this business cycle to play out rather than cater to equity markets as has been the case since former Fed Chair Alan Greenspan allowed the equity market to become the Fed’s master. 2023 may be the year that CoStar’s (CSGP) valuation returns to earth.