Credit deflation and the reflation cycle to come (part 2)

[sancho panza]

On 30/06/2021 at 22:16, Herby said:

Gap to close all UK stores.. 

https://www.bbc.co.uk/news/business-57670737

Gap to close all 81 stores in UK and Ireland
Published52 minutes ago

cross psot from the bust thread.Banks going to be taking CRE losses soon....

M&S shutting 29 bank branches and all current accounts

https://www.retailgazette.co.uk/blog/2021/07/ms-shutters-29-bank-branches/

 

H&M to shut 250 stores in 2021

https://www.retailgazette.co.uk/blog/2021/07/hm-reveals-plans-to-shut-250-stores-this-year/

 

https://www.retailgazette.co.uk/blog/2021/06/uk-govt-launches-consultation-into-business-rates-revaluations/

'British Property Federation chief executive Melanie Leech said: “We have long called for the government to introduce more frequent revaluations.

“Even before the pandemic, outside of central London, retail rents had fallen by about 30 per cent over the previous decade – and including inflation it’s more like 50 per cent – while rates remain based on outdated rental values from 2015.'

 

 

[DurhamBorn]

28 minutes ago, sancho panza said:

cross psot from the bust thread.Banks going to be taking CRE losses soon....

M&S shutting 29 bank branches and all current accounts

https://www.retailgazette.co.uk/blog/2021/07/ms-shutters-29-bank-branches/

 

H&M to shut 250 stores in 2021

https://www.retailgazette.co.uk/blog/2021/07/hm-reveals-plans-to-shut-250-stores-this-year/

 

https://www.retailgazette.co.uk/blog/2021/06/uk-govt-launches-consultation-into-business-rates-revaluations/

'British Property Federation chief executive Melanie Leech said: “We have long called for the government to introduce more frequent revaluations.

“Even before the pandemic, outside of central London, retail rents had fallen by about 30 per cent over the previous decade – and including inflation it’s more like 50 per cent – while rates remain based on outdated rental values from 2015.'

 

 

Councils sucked high streets dry on parking and rates to pay for none jobs and pensions.As usual tax kills certain sectors.Now they can reap what they sow.I doubt they owned Royal Mail,the best performing FTSE 100 stock this year the gainer from this of course.

The retail park near me is packed all week and booming,Next never stops with its click and collect etc.Easy parking and free,in out etc and councils out the picture.

[leonardratso]

softwood

[sancho panza]

for thsoe who want to see the CRE crash of 2021/22 in pictures.here are some .....would love to see similar data for the UK.

It's my humble opinion that CRE will be the BK's sub prime.The crash in San Francisco is epic.

#debtdeflation cometh.

https://wolfstreet.com/2021/07/01/it-gets-relentlessly-ugly-in-us-office-markets/

And “asking rents,” in this environment, are not indicative of actual lease terms and concessions agreed to. For example, real estate services provider Savills points out that in Washington D.C., “Concession packages for new, long-term, Class A leases now average $147.00 psf (per square foot) in tenant improvement allowances and 23 months of free rent, totaling $270.00 psf in total value – a 30.9% increase since the start of the pandemic.” This compares to stated asking rent of $58.46 psf.

Houston, first the oil bust then working from home.

The Houston office market is huge, with 192 million square feet (msf) of office space. Of this space, 31.3% are currently on the market available to lease, according to Savills. In terms of Class A office space, 33.3% is available for lease.

By submarket the availability rates range from 10% in Medical Center/South Houston to 52% in North Belt/Greenspoint. In the Central Business District, availability is 34.7%. These are the effects of years of oil-and-gas bankruptcies, downsizing, layoffs, and since 2020, the effects of working-from-home (chart via Savills).

San Francisco, office shortage turns into historic office glut.

 

Sublease inventory rose to a new historic high in Q1 of over 9 msf, according to Savills. The overall availability rate leaped to 26.3%, and Class A availability to 24.0%, compared to 7.7% and 7.3% in Q2 2019. By submarket, availability ranged from 21.9% in Mission Bay/Showplace Square to 35.5% in South of Market and to 39.2% in Jackson Square (chart via Savills):

 

 

In Washington D.C., “already record-high concessions have soared.”

Overall availability rose to a record 21.1% in Q2. This includes 2.5 msf in new developments, of which less than half are preleased, with some projects having seen no preleasing. By submarket, availability ranges from 10.3% in NoMa and 13.1% in Southwest – the only two submarkets with availability rates below 20% – to 26.9% in Capitol Riverfront:

Leasing activity, at 2.0 msf, was down 37% from 2019. Over half of the leasing volume by square footage was with the government. Renewals accounted for 57% of the leasing volume.

Asking rents have barely edged down to $58.45 psf for Class A and to $55.31 psf overall, but “already record-high concessions have soared,” according to Savills:

“Concession packages for new, long-term, Class A leases now average $147.00 psf in tenant improvement allowances and 23 months of free rent, totaling $270.00 psf in total value – a 30.9% increase since the start of the pandemic. Free rent has risen the most aggressively since March 2020, increasing by seven months on average for a transaction term of ten years or greater.”

Seattle/Puget Sound.

Availability rose to 19.4% overall, ranging from 9.0% in Everett Central Business District to 29.8% in Southend.

Manhattan, largest office market in the US.

Availability jumped to 18.4% overall and to 17.9% for Class A buildings. By submarket, availability ranged from 12.3% in Hudson Yards to 25.8% in Soho.

Leasing activity, at 4.9 msf, was down 50.5% from Q2 2019 and by 54.6% from Q2 2018. Asking rents have been inching down. Overall asking rent at $75.60 psf was down 3.5% from Q2 2019, and Class A asking rent, at $86.05 psf, was down 5.3%, and according to Savills, “concessions continue to rise with the current value of free rent and tenant improvement allowances for long-term Class A leases up 17% from the beginning of 2020.”

[Harley]

4 hours ago, sancho panza said:

for thsoe who want to see the CRE crash of 2021/22 in pictures.here are some .....would love to see similar data for the UK.

It's my humble opinion that CRE will be the BK's sub prime.The crash in San Francisco is epic.

#debtdeflation cometh.

https://wolfstreet.com/2021/07/01/it-gets-relentlessly-ugly-in-us-office-markets/

And “asking rents,” in this environment, are not indicative of actual lease terms and concessions agreed to. For example, real estate services provider Savills points out that in Washington D.C., “Concession packages for new, long-term, Class A leases now average $147.00 psf (per square foot) in tenant improvement allowances and 23 months of free rent, totaling $270.00 psf in total value – a 30.9% increase since the start of the pandemic.” This compares to stated asking rent of $58.46 psf.

Houston, first the oil bust then working from home.

The Houston office market is huge, with 192 million square feet (msf) of office space. Of this space, 31.3% are currently on the market available to lease, according to Savills. In terms of Class A office space, 33.3% is available for lease.

By submarket the availability rates range from 10% in Medical Center/South Houston to 52% in North Belt/Greenspoint. In the Central Business District, availability is 34.7%. These are the effects of years of oil-and-gas bankruptcies, downsizing, layoffs, and since 2020, the effects of working-from-home (chart via Savills).

San Francisco, office shortage turns into historic office glut.

 

Sublease inventory rose to a new historic high in Q1 of over 9 msf, according to Savills. The overall availability rate leaped to 26.3%, and Class A availability to 24.0%, compared to 7.7% and 7.3% in Q2 2019. By submarket, availability ranged from 21.9% in Mission Bay/Showplace Square to 35.5% in South of Market and to 39.2% in Jackson Square (chart via Savills):

 

 

In Washington D.C., “already record-high concessions have soared.”

Overall availability rose to a record 21.1% in Q2. This includes 2.5 msf in new developments, of which less than half are preleased, with some projects having seen no preleasing. By submarket, availability ranges from 10.3% in NoMa and 13.1% in Southwest – the only two submarkets with availability rates below 20% – to 26.9% in Capitol Riverfront:

Leasing activity, at 2.0 msf, was down 37% from 2019. Over half of the leasing volume by square footage was with the government. Renewals accounted for 57% of the leasing volume.

Asking rents have barely edged down to $58.45 psf for Class A and to $55.31 psf overall, but “already record-high concessions have soared,” according to Savills:

“Concession packages for new, long-term, Class A leases now average $147.00 psf in tenant improvement allowances and 23 months of free rent, totaling $270.00 psf in total value – a 30.9% increase since the start of the pandemic. Free rent has risen the most aggressively since March 2020, increasing by seven months on average for a transaction term of ten years or greater.”

Seattle/Puget Sound.

Availability rose to 19.4% overall, ranging from 9.0% in Everett Central Business District to 29.8% in Southend.

Manhattan, largest office market in the US.

Availability jumped to 18.4% overall and to 17.9% for Class A buildings. By submarket, availability ranged from 12.3% in Hudson Yards to 25.8% in Soho.

Leasing activity, at 4.9 msf, was down 50.5% from Q2 2019 and by 54.6% from Q2 2018. Asking rents have been inching down. Overall asking rent at $75.60 psf was down 3.5% from Q2 2019, and Class A asking rent, at $86.05 psf, was down 5.3%, and according to Savills, “concessions continue to rise with the current value of free rent and tenant improvement allowances for long-term Class A leases up 17% from the beginning of 2020.”

I've been waiting to exit my UK REITs which have been on a rise despite the macro.  Looks like they may be topping (or just pull back?) on the monthly, plus this, so probably time to take the loss.  It's gonna hurt.

[jamtomorrow]

[Removed f'd-up post]

[jamtomorrow]

4 hours ago, Harley said:

I've been waiting to exit my UK REITs which have been on a rise despite the macro.  Looks like they may be topping (or just pull back?) on the monthly, plus this, so probably time to take the loss.  It's gonna hurt.

What happens to REITs in lieu of gating? Do they just tank harder when the open-ended funds go a bit "gatey"?

[invalid]

From the DM:

 

Petrol prices now at an EIGHT-YEAR HIGH and up 18p-a-litre in just eight months - here's why they are set to head ever higher...

And the increase in costs at the pump look set to rise as the Organisation of the Petroleum Exporting Countries has told its biggest producers to increase outputs more slowly than expected in coming months, while rising global fuel demand causes supply to tighten. 

 

 

 

 

[MrXxxx]

5 hours ago, Harley said:

I've been waiting to exit my UK REITs which have been on a rise despite the macro.  Looks like they may be topping (or just pull back?) on the monthly, plus this, so probably time to take the loss.  It's gonna hurt.

It's gonna hurt?....think of all those local councils that invested council tax in REIT `investments`...that's really gonna hurt!

[Majorpain]

47 minutes ago, jamtomorrow said:

What happens to REITs in lieu of gating? Do they just tank harder when the open-ended funds go a bit "gatey"?

They will have no choice but to lock the doors if you don't get out quick enough.  I checked the T and C of one i was interested in, and it did say they reserved the right to gate the fund at their discretion if property (fire) sales couldn't keep up with withdrawals.

[MrXxxx]

14 minutes ago, Majorpain said:

They will have no choice but to lock the doors if you don't get out quick enough.  I checked the T and C of one i was interested in, and it did say they reserved the right to gate the fund at their discretion if property (fire) sales couldn't keep up with withdrawals.

Agree...just look at the Neil Woodford funds for a recent example and the justification used for stopping a mass exodus.

[jamtomorrow]

27 minutes ago, MrXxxx said:

Agree...just look at the Neil Woodford funds for a recent example and the justification used for stopping a mass exodus.

But what about closed-ended funds? They seem to be flavour of the month because there isn't really any redemption as such (so they can't/won't "gate") which means you'll presumably get *some* of your original investment back in a rush for the exit (rather than having it locked in the burning building).

Edit to add: which is potentially interesting in terms of CRE price signals on the investment side. Open-ended funds effectively stop transmitting a price signal once they're gated - valuation could be anywhere between zero and whatever they say it is. With closed-ended, the market always takes a view.

[DurhamBorn]

6 hours ago, Harley said:

I've been waiting to exit my UK REITs which have been on a rise despite the macro.  Looks like they may be topping (or just pull back?) on the monthly, plus this, so probably time to take the loss.  It's gonna hurt.

I took a whack on selling some down as well.I do think some areas might come back,but im not sure that can happen before rates increase and they have to re-finance at higher rates.

Notice today another of your warnings coming true.Morrisons agree private deal.Now a 50% gain in a few months is nice,i had a small holding,but im actually in two minds.The fact as you say income producing assets are being removed one after the other so that ordinary investors end up with nowhere to invest.

This big private money is slowly taking out all the real assets while the young are putting all their money into things that will likely be worthless in the future.

Maybe they just want us in green bonds.

 

Listed REITs are mostly common shares and their values go up and down on demand,they dont need to sell anything or lock up.If they have a net asset value of 50p the shares can be 10p or 90p it doesnt matter,its just what investors think about the future etc.

Some REITs are managing to sell assets at close to book value,yet their shares are half asset value,so in theory they should double,but its likely those assets are the best ones,the tail is probably much worse.The biggest hit to values will likely be to big pension schemes etc.They tend to own individual stores or small blocks in high streets,those are the worst hit.REITs tend to own whole centres etc so at least can re-purpose them.Our local park is hugely busy,but the high street is dead and almost everyone leaves as the lease ends.Iv noticed a lot are being done up as bars etc.

[Castlevania]

10 minutes ago, DurhamBorn said:

I took a whack on selling some down as well.I do think some areas might come back,but im not sure that can happen before rates increase and they have to re-finance at higher rates.

Notice today another of your warnings coming true.Morrisons agree private deal.Now a 50% gain in a few months is nice,i had a small holding,but im actually in two minds.The fact as you say income producing assets are being removed one after the other so that ordinary investors end up with nowhere to invest.

This big private money is slowly taking out all the real assets while the young are putting all their money into things that will likely be worthless in the future.

Maybe they just want us in green bonds.

 

 

Some of the private equity companies are listed so could be an alternative. Blackstone is on the NYSE. Bridgepoint is planning to list in London. 

[leonardratso]

re morrisons: i wouldnt worry too much about it, even though PE always promises lots of things, it will be the death knell for the company and it will turn into a piece of shit in the end as it gets hollowed out, i know ours is, and it wasnt even listed publically to begin with, everyone wants to leave now, and they are. Id be glad if i was one of the other supermarkets, since it kicks a competitor in the balls and they'll be penny pinching as soon as they are taken over.

But yes, as you said, another one bites the dust, i wouldnt want to invest in the parent to be honest, they might well do well but ive come across or rather been caught up in all this before, having worked for a few other companies that got PE'd, always the same road map, never changed, all cash up front and promises to the moon, always ended the same. Hollowed out and a shadow of their former selves.

[Loki]

Shame, I can always rely on Morrisons for decent grub when I am working away

[Harley]

3 hours ago, jamtomorrow said:

What happens to REITs in lieu of gating? Do they just tank harder when the open-ended funds go a bit "gatey"?

Private equity buys them!

2 hours ago, MrXxxx said:

It's gonna hurt?....think of all those local councils that invested council tax in REIT `investments`...that's really gonna hurt!

Er, more like I'm gonna hurt, twice!

[Harley]

2 hours ago, Majorpain said:

They will have no choice but to lock the doors if you don't get out quick enough.  I checked the T and C of one i was interested in, and it did say they reserved the right to gate the fund at their discretion if property (fire) sales couldn't keep up with withdrawals.

I'm well out of funds.  Shares only.  But I think I'll leave the "party" early!

[Harley]

1 hour ago, leonardratso said:

re morrisons: i wouldnt worry too much about it, even though PE always promises lots of things, it will be the death knell for the company and it will turn into a piece of shit in the end as it gets hollowed out, i know ours is, and it wasnt even listed publically to begin with, everyone wants to leave now, and they are. Id be glad if i was one of the other supermarkets, since it kicks a competitor in the balls and they'll be penny pinching as soon as they are taken over.

But yes, as you said, another one bites the dust, i wouldnt want to invest in the parent to be honest, they might well do well but ive come across or rather been caught up in all this before, having worked for a few other companies that got PE'd, always the same road map, never changed, all cash up front and promises to the moon, always ended the same. Hollowed out and a shadow of their former selves.

TBH Morrisons as a supermarket was on the ropes and going down.  I took my Aldi receipt with me once, abandoned my trolly, and walked out.  They've also tried a few things without success.  Shame but it is what it is.   All they have is the real estate so PE sharks clearing the carcass is sort of fair enough, no loss.  RIP.

[Don Coglione]

4 minutes ago, Harley said:

TBH Morrisons as a supermarket was on the ropes and going down.  I took my Aldi receipt with me once, abandoned my trolly, and walked out.  They've also tried a few things without success.  Shame but it is what it is.   All they have is the real estate so PE sharks clearing the carcass is sort of fair enough, no loss.  RIP.

Will they manage a sale and lease-back though, given the ongoing car-crash that is CRE?

[Hancock]

49 minutes ago, Don Coglione said:

Will they manage a sale and lease-back though, given the ongoing car-crash that is CRE?

Isn't that the entire point of buying a low debt company with assets .... so they sell all assets, award huge bonuses to the bigwigs for the huge profit that is made when selling these assets, load it full of debt to buy back shares and award even bigger bonuses ... then wait a few years and watch it go bankrupt.

Capitalism innit.

[Castlevania]

18 minutes ago, Hancock said:

Isn't that the entire point of buying a low debt company with assets .... so they sell all assets, award huge bonuses to the bigwigs for the huge profit that is made when selling these assets, load it full of debt to buy back shares and award even bigger bonuses ... then wait a few years and watch it go bankrupt.

Capitalism innit.

Yes. Sell and lease back the shops. Sell the abbatoirs; food processing and packaging plants. Take out all the money raised from the sales, load up with as much debt as possible and relist as a shell of it’s former self in a few years time. Kerching.

[leonardratso]

exactly, usualy roadmap. You say a few years but i think theyve accelerated that these days, call it a year.

[Barnsey]

Brilliant.

 

[Ash4781b]

32 minutes ago, Castlevania said:

Yes. Sell and lease back the shops. Sell the abbatoirs; food processing and packaging plants. Take out all the money raised from the sales, load up with as much debt as possible and relist as a shell of it’s former self in a few years time. Kerching.

 

21 minutes ago, leonardratso said:

exactly, usualy roadmap. You say a few years but i think theyve accelerated that these days, call it a year.

Yep a real shame. Morrison’s IMO had good quality products. I thought Sainsbury’s might be the one as IMO they seem a bit underwhelming. Argos bit seems to be integrating better I think.