Forbes is now saying that real estate has two more massive shoes to drop and it's not good, especially in the face of a potential banking crisis that's now starting with a potential near collapse here of Silicon Valley Bank I Think they'll be bankrupt very soon. Their balance sheet is a complete disaster. They're losing money hand over fist. This video isn't about them, it's actually about real estate.

Take a look at this. a Forbes piece here. Two more shoes to drop in the real estate market. Listen to this.

The first shoe in the U.S housing and commercial real estate market was the entire year of 2022. Consistent interest rate hikes, a significant reduction in sales volumes, and a cold cold draft of real estate prices we've already seen in a lot of areas. Home prices are down from their Peak 20 percent Phoenix Austin Idaho These areas are down 20 percent from Peak. The only place that's really holding up is South Florida and parts of Northern Florida right now, but that's it.

Most of the entire country is average down 10 from Peak already here. sales volumes net new orders for new homes down 15 percent alone are 38 DR Horton 80 on KB Homes So what's the next? Well take a look. Well, first, take a look at here if commercial real estate firms, particularly in the office Market or for them a conditions remain dire. According to recent studies, 71 of office space could support four times their current usage.

Uh, in other words, you're seeing a lot of sort of consolidating of of office space. So what's next to happen? Audits. Listen to this. Most real estate private Equity firms have a December year end and must provide audited financial statements to Banks and investors by the end of March or April because December 21 was literally the lowest interest rate environment in history.

While rents revising very quickly, the value of real estate was near gravity list. Fast forward to the end of 2022. And what do you have many? Real Estate Investors have not proactively reassessed the value of their real estate holdings, and now thanks to higher interest rates, what's potentially likely to happen? A massive write down of privately held real estate values. and ultimately because you're seeing a Slowdown in rents and incomes and a Slowdown in pricing especially in commercial real estate, you can see some massive write Downs in real estate valuations for any company holding real estate.

Right now, we saw this: I mean this writing on the wall has been here for over a year now. You can look at open doors balance sheets and and I mean uh, was from memory six months ago I called for at least a write down of a 20 uh, loss on their real estate holdings. Which puts them at almost negative because they have somewhere around 6.6 billion dollars in assets, but then somewhere around six billion dollars in debt. But as soon as you write down 20, you actually have more debt than you have assets.

That's how you go bankrupt. Open Door Anyway, they ended up taking it 10 write down personally. I Think they've got another 10 to 15 to go because the other thing is open doors. properties are trash compared to actual properties on the market.

Go through any open door listing I guarantee you you almost vomit. That's been at least my experience. I've been traveling around for my real estate startup Househack Househack.com and every Open Door listing I go into we see the sign and we're like oh, we already know what we get we're gonna get and sure enough we go in low quality garbage. The write Downs are going to be pretty insane.

but anyway, audit season is The Moment of Truth For Real Estate with significantly fewer transactions and fewer comps to compare properties to, So Real Estate Investors are going to have to defend their values for the first time since the raid spike in the next two months now. What's remarkable is that actually aligns with the fud cycle of when I think you're actually going to see the year-over-year comparisons and real estate values where all of a sudden you're going to get Tucker Carlson and CNBC and and CNN or whatever going oh my gosh, Year over year home prices are down over 10 percent. That's going to put the fear of God into home buyers at the same time as inventory generally surges in March April May Right now, yes, we are at very low inventory levels. duh, everything expires December 31st.

Of course you have low inventory levels the first three months of the year when that ramps is probably going to align with not only these audit write downs, but also with those year-over-year Panic numbers for Real Estate Peak fee or for Real Estate is still ahead of us. My opinion: All of this revaluing is happening right now will last for the next 60 to 90 days. Why is this important? If an Investor's loan to value maximum with their lender is 80 as in the bank will only lend you eighty percent, even even if even if the value of property drops. What happens if the investor owes the bank more than what they're willing to lend you, you either have to pay the loan back or give the bank more cash.

This is basically a margin call on Commercial Real Estate Not all loans have this. This is why I Love the 30-year fixed trade mortgage that we have in America Because even if you go upside down on your real estate, you don't have to pay any more money to the bank. This is something known as a re-margining provision. A re-margining position or provision allows a bank to call you up and say hey, look, this is a commercial loan.

This is a business loan. The value of your asset has fallen. You're screwed. Pay up.

Well, you pay up. What happens now with cash that might be available to go buy deals at certain real estate firms are actually paying down their debt instead of going to buy deals. Now you have even less people capable of even buying in real estate. See how these dominoes are starting to align? It's not good.

Be patient with buying real estate real estate. We the where we are in the real estate cycle. It would make sense to wait until we are past the bottom and then buy. That's it.

Very, very important. Remargining is very dangerous and that's coming again. You don't have that on 30-year fixed rate loans. I'll give you a quick example.

And by the way, if you want to learn everything I know about real estate Patty St Patty's week or day. whatever. there's a coupon that's already active linked down below for the programs on building your health, do it yourself. Property Management We've got uh, zero to millionaire real estate investing that's the most popular.

Generally, people bundle that with stocks and psychology money. Anyway, you know that link down below. Uh I Actually on uh, the plane that I have made sure that I had a 20-year term fixed, no variable rate and no re-margining provision I purposely made sure I did not have a re-margining provision because if the value of my plane goes down I don't want to put more money into that sucker. that's bad because I want my money to go buy deals anyway.

This most of the time you don't have the privilege or the luxury to say I don't want a remargining provision. So what do we have over here? The Current Financial market conditions are dramatically tighter. Owners who may have been safe in recent years could now be forced to find other financing options or become for sellers. Well, that's the other issue.

If you're walking into a freaking banking crisis and banks are calling you up, going yo, pay up and you're like dude, I don't have any money and the bank's like, well, then go borrow it from someone and then you go okay, well who's gonna lend it to me? Certainly not Silicon Valley Bank How about you lend it to me Lender? Well I'm just like, yeah, no, no, no, we are re-margining we're not lending you more. It's very scary. Uh, let's see here. I Feel like if I'm waiting to know when to buy.

All I need to do is wait for Kevin to start buying without saying Secrets away No, don't copy me, don't don't Uh, not. Financial advice Anyway, those who have been kicking the valuation can down the road may be forced to acknowledge the fact that interest rates are up, even if they're performing well. Banks May Force them to answer the question: Do your loans meet the value test next? Taxation Now this is actually really interesting. I'm going to sum it up though, when property values go down, tax revenues go down, Smaller towns that are not well capitalized could literally go bankrupt.

It has happened before. It will happen again. Then property taxes go up, Austerity measures go in. Property values go down even more because they have to start shutting down fire departments or whatever I Kid you not, cities will shut down your fire departments.

Not all of them obviously. but people think I'm crazy when I say that it literally happened in the city that I live in which I know I'm in Florida right now literally happened Ventura California couldn't raise their local taxes anymore and they're so terrible at managing money. What happened I said All right, we're closing Fire Station Four and guess what? Response times for the fire department and paramedics up like 20 because the fire department closed down. Yeah, it can happen.

And guess what that does lowers property values even more. It's insane. So anyway, I'm speeding through this part because uh, I I think that's that's obvious. but I think it feels a little bit more Arcane the next thing obviously would be that being that for seller, right? And that's that's scary.

And look at this. The short answer is, we'll probably know by summer. Yeah, so that's Forbes right here telling you uh oh, you've got a pretty big oopsie-doopsy potentially Coming For Real Estate But it's not just Forbes who's complaining about this. It's also Bloomberg Bloomberg had a phenomenal piece on this and it really gives you the worry about a commercial real estate.

Some people think commercial real estate is a good investing opportunity right now. Biggest value trap you could touch right now is commercial real estate. Look at this. even wealthy landlords are skipping payments on.

Office Buildings Commercial Real Estate Investors Uh, let's see here. Interest: Rising Interest rates and remote work will bring more deep defaults to downtowns near you. Uh okay. Oh, here's the news.

Hold on on. Silicon Valley Bank Silicon Valley Bank Financial is in talks to sell itself. Dude, nobody's gonna buy them. They got a bunch of toxic assets I mean then again, JP Morgan Bought bear Stearns for fraction Pennies on the dollar.

But anyway, what do we have over here take? Pacific Investment Management Co Funds managed by the 1.7 trillion dollar Asset manager acquired by Columbia Property Trust which owned 15 office buildings in New York SF Boston Washington DC Uh, let's see here. what do we have here Acquired Okay, high quality Office Buildings in major U.S City offer long-term value so you've got somebody here. This is in 2021. in 2021, even after office is empty during the pandemic.

Funds managed by the 1.7 trillion dollar Asset Manager which owned 15 buildings. Uh, it it worth 3.9 billion dollars. Got it? Okay, so so they were bullish then? So what are they saying or not? Last month this company defaulted on 1.7 billion dollars of mortgages. Okay, so in other words, they're bragging about how great commercial real estate is and then what are they doing over here? Now they're defaulting on 1.7 billion dollars worth of mortgages.

Look at that. What do you think? defaults on mortgages? do? defaults on mortgages ruin the banking crisis even more? This just makes everything even worse. Those mortgage-backed Securities that are sitting on the balance sheets of JPMorgan Chase Bank of America Citibank Wells Fargo They're becoming literally toxic. You can look them up again.

There you could go to the uh, the balance sheets of these companies uh and then type in, uh, Usually you could do Cmbs. those are uh, commercial mortgage-backed Securities That's a search you could do for them. Uh, you could do MBS searches. Either way, you'll find them in the reports for these companies.

and it's scary because a lot of them are going to get written down substantially. There's a reason why JP Morgan has an unrealized loss in their 10K ending December of 2022. We don't even have all of the write Downs yet for commercial real estate and they already show a loss. an unrealized loss of over 47 billion dollars.

It's insane. It's scary. Some of this stuff is scary. anyway.

So now you're getting a default over here. Anyone who recalls the 2008 financial crisis in the housing bubble bursting also might remember the score and heaped on homeowners who stopped paying mortgages because their houses were hopelessly underwater. They may now find it ironic that some of Wall Street's most prestigious companies are threatening a similar Behavior Yet for institutional investors, defaults can be a strategy to open the door to debt restructuring. Debtors with Commercial Mortgage-backed Securities must at least technically default on their loans before they can renegotiate terms.

Commercial Mortgage-backed Securities are non-recourse debt. Which means borrowers can walk away and creditors can't go after their own. Assets In other words, words, you look at the balance sheets for some of these companies like Silicon Valley Bank And what happens? What do you find on them? Oh crap. Commercial Mortgage-backed Securities What did Bloomberg Just tell us? These people could just walk away from these assets.

They could literally walk away from them. Look at this. Here's Silicon Valley Banks 10K End of last year? What do we have right here? 1.4 billion dollars in agency commercial-backed mortgages right here? Well, another 1.4 billion dollars right here. Agency Mortgage-backed Securities Another 6.6 billion dollars.

This company's going BK Especially when you write down another one. They they. That's if they had to write this down. that's their entire income for last year.

that's gone. Uh, and nothing. Obviously, you would write it down 100. but it's It's showing you the con.

The real risk is not only commercial real estate, but it's also the banking sector that's a disaster. Because that's when you get j-pal who comes in and goes, oh crap, we broke things I Mean, look at this: uh Elon Musk isn't paying his rent at Twitter certain places, certain parts he's not using anymore. He's basically this is called self-evicting What you do is you basically move out of part of an office and then you're like, oh, we don't need that space anymore, we're just not going to pay. Uh, Okay, so we talked about the Strategic buy down.

Amazon is pausing construction for its second headquarters of your Washington Facebook has reduced the amount of space it has leased to New York Today, the average office usage is about 50 percent of pre-pandemic levels, which could be the new. Norm This is terrible news, by the way, for the commercial mortgage-backed security. Market Investors were hopeful that more people would return to the office. Oopsie, oopsies.

That's why it's called a value trap baby. Office building values have already fallen 25 from just a year ago. Yeah, you're gonna have to write that down even more. Another problem is that investors have simply paid too much.

The fund see this is I Oh My Gosh. I'll tell you. Let me. just like if I could grab your shoulders in real life right now and then we'll go have a beer later.

Okay I would grab your shoulders and go Wall Street Doesn't understand ground floor real estate. They overpay all day long. They have all this money and and their Mbas from fancy colleges and nobody learns boots on the ground real Estate. No, nobody understands the value of actually getting a good deal anymore.

It's scary. This is why I'm doing House Hack. It's it's to buy homes under market value. There's an Arbitrage opportunity and most of Wall Street doesn't get it.

I Mean they literally are willing to overpay for stuff. That's that. That's Wall Street for you. Oh, we'll overpay for Real Estate so we could get our asset under management fee.

It's a fraud. It's not actually fraud. it's just the way the system is. but it it's If I have any say with it, we're going to change it.

That's why I'm trying to create the Vanguard of real estate with my startup House Hack accredited investors Househack.com Anyway, the fundamentals of offices have been deteriorating since before. Even with a strong jobs market and booming corporate profits, Landlords had to boost concessions such as free rent to be able to attract tenants. This is another scam right here. This is another big scam.

You ready for this? Okay, here's what companies do now. I Kid you not, this is how people get scammed in real estate all the time. They look at the rent rolls for a property and they're like, oh, the cash flows. So wonderful.

Wow. You rent all of those two bedroom one bath units for two thousand dollars a month? That's fantastic. But what they don't tell you is when tenants sign up, they're potentially getting two or three months rent free. We'll see.

Think about that if you're giving three months rent free. Let's just say, on a twenty four thousand dollar annual lease, two thousand dollars a month, right? Three times Two is six, right? What you've just done is, you've actually discounted the rents by 25 to get the property rented right. But guess what? The person, the sucker who buys the property doesn't realize that the rents are inflated. They're like, oh yeah, these two and ones are getting, uh, two thousand bucks a month.

The reality is, they're only worth fifteen hundred dollars a month. So now you're over paying for real estate. On top of that, I'm telling you, there's so much dare I say near fraud in real estate? It's it's insane. Uh, but anyway, and people don't get it.

They just what they want I just want to see you. You know your projections. It's insane. Anyway, even with a strong jobs Market booming corporate profits, landlords have to give free rent to attractive tenants.

The underwriting that people that people made when they bought the buildings had no relation to reality. Yeah, exactly. That's what I'm saying. The deal underwriting is complete garbage in real estate.

It's It's so sad. There's fundamentally unsound economic economics behind the deals. The Outlook is far Grimmer today than in 2021. The Federal Reserve is forecasting the unemployment rate will rise to 4.6 by the year end.

Even when the economy recovers, it's clear that many buildings will never recover. Owners are exploring conversions to housing. Oh, that's hell, dude. But those deals won't make a dent in office supply in the short term because of zoning, exorbitant costs, and the complexities of engineering.

Do not think you can go turn strip walls into homes easily? It ain't happening. Nobody wants a parking lot as their front lawn. Uh, the amount of Redevelopment It's insane. It's insane.

We can't even build enough normal homes on dirt. And people think somehow we're going to turn a bunch of commercial buildings into homes in a jiffy murder interpreter. Uh, even when they come. Okay, great short.

Sellers are betting that more debt tied to offices will go into default. Completely agree. Hedge funds, uh, including whomever right here are using credit default swaps. It's 2008 all over again.

Oh my. God Uh. known as Cmbx. uh to wager against bonds tied to Office Buildings Similar to previously successful bids against shopping mall debt by Carl Icahn and Michael burry.

Wow. I Don't think this is the big short, but there is going to be a lot of distress in office. There could be an opportunity for many of the biggest investors which still have piles of money and are poised to pounce. They're waiting for a lot of these buildings to go back to the banks.

Well, if they go back to the banks, man, more banking stress. That's what. you're literally facing. even more banking stress.

and it's scary because of what's happening over at. Silicon Valley Bank It's It's very scary You don't want. You don't want to see this. The sucker's down 45 in pre-market It's insane.

It looks like it's actually rebounded at chunks since the pre-market I Think it was down to something like 30 bucks. Uh, in in the pre-market It's popped up a little bit now because you have this talk about uh oh. their Capital raise failed. Uh yep.

See, there you go. Silicon Valley Bank Capital Raise failed. Now in talks to sell itself? Well dawg, is the stock plummeted of course? Uh, their their raise failed. Uh I Don't know.

I'm still actually seeing on some sites here that we're actually on a halt on uh, Svb. still so so we'll see it's going to be pretty volatile. but uh, good luck. I Don't know who wants to buy a bank right now with a bunch of toxic assets, but what it does do is potentially lead the FED to slow down.

Uh I Know everybody's still talking about this potential for 50? BP No way. Jose Now with a potential banking crisis afoot, wait for the dust to settle. I Actually I Actually think there's a greater likelihood of no rate hike than there is of a 50 BP rate hike.