Troubles with Commercial Real Estate Signals a BIG Problems

With the pandemic almost over, children back in school many businesses are encouraging employees to return to the office. The companies that own big office buildings were hoping that the nightmare of the last two years is over. However, things not have gotten better, they have gotten worse. Remote work and rising interest rates are dealing a double blow to office landlords, with potentially grave consequences for the national economy.

Commercial Real Estate value down 39%?

Although more office workers are back at their desks than a year ago,  attendance at office buildings in New York, Boston, Atlanta, Chicago, San Francisco and other cities is well below pre-pandemic levels. As leases come up for renewal, companies are often opting for smaller offices, leaving landlords with millions of square feet in vacant space. More space is expected to hit the market in the coming months as lease expire and more than 100,000 technology workers have lost their jobs. According to a recent study by business professors at Columbia and New York University, the value of U.S. office buildings could plunge 39 percent, or $454 billion, in the coming years,

New York City as an example

Let’s take a look at the New York commercial real estate market as an example of how bad things are.  Rising interest rates have intensified concerns that the New York City office market, the largest in the country and a pillar of the city’s economy is at  risk. Low occupancy rates and falling property values and higher borrowing costs could increase the odds of a recession nationally and a budget crisis for the city. In the latest snapshot of New York City’s largest office landlord, SL Green Realty Corporation revealed that more of its properties lost tenants during the first months of 2023. Shares of SL Green and two other publicly traded office landlords in the city, Vornado Realty Trust and Empire State Realty Trust, stocks are all trading near their lowest level since the pandemic started. SL Green’s stock has fallen 76 percent since early 2020. Vornado is trading at its lowest territory since 1996. Empire State Realty, which owns the Empire State Building, is near its record low. Collectively, $17 billion of their market value has been erased since the pandemic started.

Urban doom loop.

According to a recent study by researchers at Columbia and New York Universities, the value of New York City office buildings could tumble $48.75 billion in the coming years. This would hamper a vital source of the city’s tax revenue. In addition, office workers in the city make about 75 percent more in annual salaries than the rest of the private sector (according to the Office of the State Comptroller) and their absence from the office every day deprives a host of local businesses of their spending. Stijn Van Nieuwerburgh, a real estate professor at Columbia University’s business school, has warned that New York City faces an “urban doom loop” sparked by remote work. While the current commercial real estate downturn shares similarities with previous declines, including periods in the early 1990s, after the Sept. 11 attacks and during the 2008 financial crisis, this drop has a new twist: The lower demand for office space appears permanent.

Trouble in commercial real estate = trouble for banks = trouble for the economy

Large banks like JPMorgan Chase and Wells Fargo have increasingly warned that a heap of commercial loans are coming due by the end of 2024 — estimated to amount to $1.5 trillion nationwide — and that  companies may struggle to repay or refinance them. More than two-thirds of all commercial real estate loans are held by small- and medium-size banks, prompting concern that regional banks might be unable to withstand a wave of defaults if landlords cannot pay off loans. Some analysts have forecast a dim future for city centers, likening the crisis to the slow death of many American shopping malls.


The banking crisis, that started with saving the regional banks such as SVB, is not over! I believe there is another shoe to fall, as expressed above. The banks have not yet felt the affect of the crash of commercial real estate prices on their loan portfolio. Defaults will come as a surprise to most investors, just as did the crash of CMO market.  Most economic disasters are a surprise and can start with something as simple as the SVB failure and escalate! Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, (such as the Great Depression or 2008), economists agree that it could never happen again. Who could be so stupid as to let 10 banks control 70% of the US assets (to big to fail) and allow all the US economic growth  go to the top 1%, while eighty people own 50% of the world’s wealth?

FOR MORE, SEE ISL #742 (summarized below)

Trouble in China There is trouble in China. The Chinese Hang Seng Index  hit a new 10 year low in 2023. Also the China’s Consumer Confidence Index is at a record low. Something is wrong. Confidence in China’s economic foundations could cross a threshold, beyond which it becomes far more difficult to recover.

World debt $226 trillion up from $74 trillion in 2019. My concern is in the world’s ocean of corporate debt, worth $226 trillion up from $74 trillion 2019. US corporate debt has climbed during the same period from $18 trillion to $30 trillion. Two-thirds of non-financial corporate bonds in America are rated “junk” or “BBB”, the category just above junk. The growth in debt has now stopped, because suddenly investors are worried and interest rates are high and going higher

US federal debt to GDP was in 1980  34.5%, 2000 57.9% and in 2021 100% The US Federal debt is over $30 trillion dollars and is growing. It took the US from 1789 to 2016 to get to $15 trillion and only 6 years for it to double. With the spending of that kind of money, we could have eliminated US poverty and given health care for all. Now, we are just stuck with the problems, in addition to the debt! Total US and State debt to GDP is 142%. ANNUAL INTEREST ON DEBT; is $450 BILLION AND IS RISING AS INTEREST RATES GO UP. Here is the scariest statistic: OTC Derivatives are $600 trillion (10 TIMES WORLD GDP). $600 trillion is at about the same level that caused the 2008 trouble in the banking system. And now there is talk in Congress to let the US default on its debt. When you play with fire, you can get burnt!

Our DOWNSIDE PROJECTIONS ARE: a DOW of 28,000 to 27,000, NASDAQ 9,000 to 8,000, S&P-2,900 to 2,700. Don’t fight the Fed!

Dow 33,614,     NASDAQ 12,078    S&P 500  4,108

Carl M Birkelbach


Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information.