To The Moon

The office Commercial Mortgage-Backed Securities ( $iShares CMBS ETF(CMBS)$ ) delinquency rate just skyrocketed by 63 basis points in October, blasting past 11.8% and eclipsing the post-2008 financial crisis peak of 10.7% by over a full point. 😱 This relentless climb since October 2022 screams escalating turmoil in the U.S. commercial real estate arena, fueled by sky-high interest rates, stubborn vacancies, and a stubborn shift to remote work that's leaving towers empty.

Picture this: billions in office loans, bundled into securities and sold to investors, are now crumbling under the weight of refinancing nightmares. Borrowers who locked in low rates years ago are staring down double the costs today, with property values plummeting 35-60% in hotspots like New York and San Francisco. 🏙️💸 No wonder defaults are piling up – it's not just older buildings; even shiny new ones are feeling the pinch as companies slash space needs amid hybrid work vibes.

But wait, it's not solo – multifamily CMBS delinquencies jumped 53 basis points to 7.1%, the worst since late 2015. 🏢📈 Overall U.S. CMBS delinquency ticked up 23 basis points to 7.46%, marking a four-year high. This domino effect? High construction booms meeting expired rent surges and pricier debt service, turning once-solid investments into headaches.

Why care? This isn't isolated drama. Regional banks, clutching 70% of CRE loans, could tighten lending to businesses and folks if defaults bleed over. Bondholders in those CMBS tranches are sweating widened spreads, hinting at 20%+ implied flops. And with $60 billion in office CMBS maturing soon, the "pretend-and-extend" game is running out of plays – special servicers are swamped, pushing more toward foreclosures or fire sales. 📉🔥

Flight to quality is real: top-tier Class A offices scrape by with 50-55% occupancy, while B and C grades rot empty. Corporate downsizing and failed return-to-office pushes keep the pressure on. Add in economic jitters, and you've got a recipe for broader market ripples – think slower growth, wary investors, and potential hits to pension funds or insurers loaded with these bonds.

On the flip side, opportunities lurk for savvy players like Blackstone, who've snapped up distressed gems in the past. But for now, the stress is mounting, signaling deeper woes in a sector still reeling from pandemic shifts. 🌐⚠️

Here's a quick historical snapshot in table form to track the chaos:

For a visual punch:

What’s next? If rates stay elevated and WFH sticks, expect more fireworks. Investors, buckle up – this CRE storm is far from over! 🌪️💼

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📝 Disclaimer: This post is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.

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