In this Yahoo Finance report from today (3/24/2023), they talk about how the bank crisis is not a good thing for commercial real estate, in general, because that sector has had so many changes and stresses since the pandemic began, The whole work-from-home movement has pulled lots of workers out of offices, and that is after years of the Retail Apocalypse opening up thousands of retail stores, as ecommerce surged in popularity, and then the sharp and quick rise in interest rates.
As someone who has been blogging about a major economic downturn that looked to be coming for about 4 -5 years now (like here), commercial real estate is another area I believe will go through a huge transition phase, as we continue to move out of the remaining Industrial Age institutions and business models, and into Information Age models.
I've written much more on this underlying idea here and here. Whether my working concept, that I call The Big Transition (an extension of Alvin Toffler's concept, TheThird Wave from 1980,) is the best take on things can be argued, but in any case, it appears that there will be major, and massive changes in the uses of commercial real estate in the next 10 years or more. This will be on top of lots of changes that have already take place, like the adaptive reuse of old grocery stores for fitness centers, dead malls for shipping centers and medical offices, and many other ongoing reuses of commercial properties.
More on my Big Picture of how I see the 2020's playing out can be found in my online "book/blog thing," written in 2019-2020 called Welcome to Dystopia: The Future is Now. In it I explain the three theories of other thinkers that I believe best describe where things are going, and my take on, and extension of those ideas into more recent years. In any case the bank crisis is abou tthe last thing the commercial real estate world needed right now. We'll see how things play out.
Just saw another article fromYahoo Finance today (3/24/2023). "Banks are sitting on $1.7 trillion in unrealized losses." Uh... that's not good. The article goes on to say that of the $17 trillion in banks deposits in the U.S., $7 trillion are not covered by FDIC insurance.
First of all, I looked up the term "Bankpocalypse" yesterday, just as a joke. There were 665 results. Today there were 340 results. It appears someone is scrubbing the term from Google Search results. For real. To put that in perspective, my first name is Steve, and I googled "Stevepocalypse," which is absurd, and not likely to very popular, unless you hate all guys named Steve. There were 1,030 results. Three times as many as Bankpocalypse. Hmmmmm...
First Republic Bank- Despite a $30 billion cash infusion last week, deposited in the bank by several major banks, for 120 days, the bank's stock continued to tank today. It closed at $12.18, down more than $20 from last week, and down 89.4% from it's March 8, 2023 price of $115. So they are still struggling to straighten out things, and restore confidence in depositors.
Western Bancorp- Their stock is about where it was last Friday, closing at $18.12, down about 6% from March 8th, and down from about $25 at the beginning of 2023.
Pac West Bancorp- Their stock is also about where it was last Friday at market close, down about 61.8% since March 8, 2023. The stock went from $26.68 on the 8th to 10.12 today.
To put these regional bank stocks in perspective, Wells Fargo stock, one of the Big 5 banks, is down 19.6% since March 6th, 2023. Banks at all levels have taken a hit. J.P. Morgan, Goldman Sachs, and CitiGroup are all still down a fair amount, 10% or more, as well, since March 6th.
The $494.9 billion dollars loaned to the banks of the U.S. last week seems to have helped the stock market today, but not the banks as much as I would have expected.
Blogger's Note- The Next Day- 3/21/2023- There's some crazy blurb on the CNBC site saying First Repbublic stock is up 50%. This morning the stock rose from $12 and change to $16 and change right now. The stock chart still looks like a cliff, and New Republic's stock is still down 90% in the last year. Here's the chart.
Blogger's note- 3/23/2023- According to this CNBC article today, more than $70 billion more has been loaned to banks in the last couple days. Some through the new BTFP program, and more to the closed down banks. That puts the total to bailout well over half a trillion dollars within two weeks of the beginning of the bank crisis. The stock market indicies were up today, with major banks down some, and First Republic stock holding steady now.
Many years ago, around 2009 or so, Ray's MTB mountain bike park had a video contest called "Odd Couple," named after this 70's TV show. The idea was for a mountain bike rider to team up with a BMX rider, and a video person, and make a video at Ray's. I'm not sure who won, but this was my favorite video, BMXer Taj Mihelich and MTBer Jeff Lenowski. This, and an earlier video of Props Road Fools BMXers going to Ray's MTB, helped spark my idea for building a multi-sport/arts complex some day. The idea evolved in the years since.
This new blog seems to be attracting a different group of readers, right from the start, much to my surprise. That wasn't my intention. The original plan (which always gets changed) was to do this blog without really promoting it, and "collect" a bunch of ideas on how people have, and are now, repurposing old, abandoned, and empty buildings. I wanted to slowly dig into the ideas already out there, and start learning more about this subject over a period of time. Then I'd figure out if I wanted to take it further, in one direction or another.
Then Silvergate Bank collapsed, and then the larger, Silicon Valley Bank collapsed, and there were runs on several more banks, and the current banking crisis erupted. This blog seemed the perfect place to chronicle some of the key points, with links to videos and articles, as that was happening. Then this blog started getting some views. Somebody is checking it out, and keeps checking it out. So now it's become a more serious part of my current writing, along with my main personal blog, Steve Emig: The White Bear.
My older readers know my background, but I think I need to explain my life a bit here for any new readers. I moved around a lot as a kid, my dad was a draftsman/engineer, and my mom was a housewife, usually into some craft trend, like ceramics. We bounced around Ohio until I finished 8th grade, in 1980. Back then the small towns and cities of the Midwest were still thriving. People often worked the same factory job their whole life, taking the family on a vacation to Lake Erie, or maybe Florida, every summer. But for a variety of reasons, my parents kept moving, nearly every year, with me and my little sister, Cheri, in tow.
The factory buyouts and shutdowns that decimated U.S. manufacturing were just beginning in 1980. Word got around that Plymouth Locomotive Works was up for sale. My dad worked there, and sent out some resume's, soon landing a new job. We moved to New Mexico for a year, a big culture shock for a Midwest kid. I hated the heat, but loved the wide open spaces of the West. Then we moved to Boise, Idaho, in 1981. I managed to go to the same high school, Boise High, all three years, though we lived in two houses and a mobile home during that time. In the trailer park outside Boise, my junior year of high school, I got into BMX riding. I began to race BMX, then got into the brand new sport of BMX freestyle, then called trick riding. BMX bike riding became the theme of my life.
A year after I graduated high school, and couldn't afford college, my family moved to San Jose, California, led by my dad's new job. I started a zine, a little self-published booklet, about BMX freestyle, to meet the riders of the Bay Area. That zine landed me a job atWizard Publications, home of BMX Action and FREESTYLIN' magazines, in Southern California, in the summer of 1986. At age 20, without taking a single college course, I was suddenly proofreading two worldwide magazines, though I was mostly an assistant to the other editors and our photographer. The idea of going to college went out the window, and I became a part of the BMX and skateboard industries through the heyday of the late 1980's boom in those sports.
One weekend when there was a big freestyle contest, and a girl my friend and I met at a trade show invited a bunch of us freestylers to a party in Palos Verdes. Her family had a good sized guest house behind their house. The yard went beyond, to a cliff overlooking the Pacific ocean. As we hung out and partied, and eventually all crashed out on the couches and floor, I had this idea. "Man, it would be cool to have a big house, with a guest house, and a halfpipe and some other ramps in the backyard some day. Then people from all over the country, and the world, could hang out at my place when they were in Southern California.
As I fell asleep on the floor of the guesthouse that night, that idea was in my head. It was just a cool daydream to think about for years after that. I wound up roommates in several houses and apartments with pro BMXers, and we had travelers staying on our couches and floors much of the time, from across the U.S., and several parts ot he world. That was my life as a BMX freestyler in the long recession of the early 1990's. I didn't do that much traveling, but I met riders in our weird little sport from at least 6 or 8 countries, and much of the U.S., when they stayed with us to save money while traveling.
I was too shy to get my own business going, though I managed to self-produce a BMX video ni 1990, and produce and edit a few other videos for small BMX companies. BMX and skateboarding largely died off, except for the hardcore riders, in the early 1990's. During the 90's, I wandered through a series of odd jobs, read 200 or more books, and lived and rode my bike, into the early 2000's. After an injury, I left my "Hollywood" lighting tech job, and wound up a taxi driver in the Huntington Beach area. It was cool for a year, then technology changed the business, and things went downhill. After the dispatch computer replaced the old CB radios, I worked seven days a week, 12-16 hours most days, and just barely scraped by. I gained 150 pounds, didn't have time to ride my bike, and ultimately wound up in homeless, in really poor health, in 2007. I spent a year on the streets of Orange County, California, trying different ideas to get my life going again.
Meanwhile, my family kept moving around. Ultimately my parents, and my sister, wound up in central North Carolina. In November of 2008, as the economy crashed, I accepted their longstanding offer of plane ride to North Carolina, and stayed in my parents' tiny apartment. Initially I planned to stay through the Christmas holidays, then head back to California. I couldn't find any work, not even a cashier job at a gas station, or work in a restaurant. I got stuck in NC, and I got severely depressed.
Bored out of my skull, but with 24/7 access to the internet for the first time, I started blogging about my life as a BMX industry guy, and hardcore, if mediocre, rider in the 1980's and early 1990's. That helped reconnect me with many of my old BMX friends online. But I still was living in a tiny town in NC, in my parents' apartment, at 43 years old, with no job and no income. I finally found work driving a taxi in nearby Winston-Salem, a once rich tobacco city, struggling to rebuild after their factories shut down years earlier, like dozens of other American cities.
Around that time, I first heard of a book called The Rise of the Creative Class, by professor Richard Florida. His Creative Class concept, and the notion of tech companies locating in cities that already had thriving art and music scenes, "Creative Scenes," as I call them now, made perfect sense to me. I was a part of several different BMX freestyle scenes in the 80's, and saw how a handful of people could launch a new idea in an area, introducing it to more people. I had also seen the whole arc of the a Creative Class city actually happen, in Huntington Beach, California. While Richard Florida was trying to figure out why tech companies clustered in certain cities, as a Professor at Carnegie Mellon, I was living in a city that was playing out the Creative Class arc he was chronicling and later writing about.
In the Huntington Beach area, the Creative Class wasn't young tech start-ups, it was surfers, then skateboarders, punkers, BMXers, snowboarders, motocross riders, and later MMA fighters, that formed a culture like no other. There was this vibrant collection of highly creative, pretty weird, action sports people, and that area became the first action sports major hub of the world. While it wasn't a tech focused scene, it was the same dyanmics, a Creative Class city and region.
The H.B. area busniess start-ups turned into businesses like Surfline, Victory westsuits, Robert August surfboards, Jack's Surf Shop, Huntington Surf & Sport, Vision Skateboards, Sims Snowboards, Schmitt Stix Skateboards, Quicksilver, Etnies shoes, GT Bikes, Volcom clothes, S&M Bikes, and even the night club, Club Rubber, among many other action sports related businesses. Huntington Beach, was still the "dirty beach city" in the 1980's, there were oil pumps all over downtown, a remant of the 1920 oil rush there. Newport Beach, just to the south, was the "cool city," at the time.
H.B. was where there was still pretty cheap rent right by an 8 mile long stretch of undeveloped beach. There were always waves, not great waves, but decent waves. That's what made Huntington Beach "Surf City," from the Jan & Dean song way back in the 1960's. Surfers make movies, and us skateboarders and BMXers and snowboarders began to make videos in the early 1990's. Those videos made Huntington Beach famous around the world, to other surfers, skaters, and BMXers and other action sports people. That hype eventually spread to other groups, making Huntington Beach known aorund the world. The economic development world still hasn't figured this out yet. Action sports people are a great hype machine for a city, without even trying, since making lots of videos is a huge part of the culture, expecially these days.
Huntington Beach attracted talented action sports people, who are highly creative by nature. That made the city more attractive to other people as the years passed. In the early 2000's, after many years of a hardcore action sports culture, Yuppies, including a lot of tech workers from nearby Irvine, moved in. Now Huntington Beach is more of a South Beach, an upscale beach city with a ton of shopping in the old downtown area. But there are still decent waves, and lots of surfers. The rent is just five times as high now. But I lived their when the freaks and the weirdos ruled the scene.
I knew, from experience, how small scenes of highly creative people attracted more creative people, and that kept going, in some places. Eventually, a growing Creative Scene can evolve into a scene of all kinds of interwoven Creative Scenes, art, music, web design, YouTubers, action sports, and small entrepreneurs, and other creative pursuits. They intermingle, and continually bounce off each other's energy and ideas.
When you get some entrepreneurs into the mix, then you get a bunch of small businesses growing and emerging, as well. That was the kind of culture many tech workers wanted to live in, as Richard Florida's research showed. In the 2000's, after the success of The Rise of the Creative Class book, and Florida's active lecturing on the concept, dozens of American cities were trying to attract those Creative Class workers. More important, in the civic leaders minds, was to attract tech start-ups, to jumpstart their local economies again. Winston-Salem, along with nearby Greenboro and Highpoint, were trying to attract those people and those entrepreneurs. So were about 100 other cities around the U.S..
Meanwhile, I was driving a taxi. Most of a taxi driver's day involves sitting in the car, in a good shady spot if it's hot, waiting for taxi calls. One of my favorite hang out spots was in the parking lot of an abandoned building at 1901 Mooney Street, in Winston. A small patch of woods provided a big shady area to park the taxi in the hot Carolina sun. I was right above Hanes Mall, on a little bluff, and also close to Forsyth Hospital, and many businesses and some hotels. Because the old warehouse was abandoned, the backside of the building was all mine, most of the time. A few local workers would drive there and eat lunch in their cars. I was living in my taxi, so I actually slept in that out of the way parking lot many, many nights.
As the hours ticked by, I would daydream about being able to buy and rehab the old warehouse, and turn it into a BMX, mountain bike, skateboard park, with an indoor rock climbing area as well. That old idea was a cool daydream to pass the time. I imagined building a multi-sport action sports park, that also had some art studios as well. In the suffocating, ultra-conservative culture of North Carolina, I knew a place like that would soon become famous in the region to other action sports people. I also knew that action sports people make videos. A sports park, like I imagined, would put a city like Winston-Salem on the map, on YouTube and social media, the way Ray's MTB has in Cleveland. It would be a new kind of hub for creative action sports people, as well as artists, and video producers. A small creative scene like I imagined would help draw more creative and talented people to an area not known for them.
Winston-Salem already had a cool little, but vibrant, art scene, on Trade Street, downtown. But North Carolina, and The South, in general, had hardly any action sports scenes. Yeah, Dave Mirra and Ryan Nyquist were from the Greenville area, but that was an exception, not the rule. The small, local, surfing, skateboarding, BMX, and other action sports scenes, which are all over California, didn't really exist in NC.
What the leaders of North Carolina, and all convervative (small "c") parts of the country don't understand is how much culture really matters. Not high falutin' aristocrat culture, but creative culture, a place where the weirdos of the area can safely be weird, and try all sorts of new ideas. If there's a place where a pocket of creative weirdos can thrive, and be their weird selves, word gets around. Soon other people, other types of Creative Scenes, often set up shop, building the over all scene of Creative Scenes. I'd seen BMX freestyle go from a couple dozen little pockets of goofy bike riders across the U.S., into a worldwide sport in 40 years. Nobody planned that. There was no BMX Illuminati strategically planning to take over the world on "little kid's bikes." It happened organically, as we just naturally, and tirelessly, promoted our weird sport, because it was fun.
The same happened in skateboarding, snowboarding, mountain biking, and all the other action sports. In those groups, there are also lots of artists, designers, video producers, and photographers. That is one part of the Creative Class that any thriving city in today's world needs. But no one wanted to hear that back in 2010. Most civic leaders still don't want ot hear this, as their cities and towns die on the vine.
So my whole interest in what's now known as "Adaptive Reuse" of buildings, came from sitting in my taxi in Winston-Salem, next to an abandoned warehouse, daydreaming about what I wanted to do to make that building thrive again, in my own way. That building did get rebuilt, and put back into use. It became a medical facility, I beleive, and is now listed as a baseball training business on Google Maps.
Now, it's 13 years later, and I'm back in Southern California, living, if not thriving. There are action sports and arts scenes all over this huge metro area. An action sport park would be cool, but it wouldn't have the same local impact here as it would have in a struggling small or mid-sized town in a less populated part of the U.S.. And it would be really expensive to find a place big enough to do it, here. Not impossible, but expensive. At this point, I really want a decent sized indutrial or retail building that I could live and work in, which could house a mini ramp and an art studio. Something like that. That's the current dream.
So that's where my personal interest in Adaptive Reuse came from. But it's now merging with my geeky, futurist side. I know were in for some more really, really, turbulent economic times. Even here in expensive, crowded, Southern California, there are empty offices and retail storefronts all over the place. The banks are now hitting the beginning of the Bankpocalypse, a major shift in how banking happens for businesses and individuals. Commerical real estate is beginning to crash, and there will be a lot more empty buildings in the next few years. So I'm using this blog to dig into this whole idea of adaptive reuse. I want to learn the basics, to see what's happening in commerical real estate in general. I also want to look at all the different types of building repurposing that other people have done, from the huge projects with dead malls, and old factories, to the small one or two person projects. So that's the basic idea and thinking at the beginning of this blog. We'll see where it takes me, and all of you, as it progresses. Thanks for reading.
For those of us weird economic-type geeks, we've been looking for landmarks in the road into this recession, depression, or whatever this turns out to be.
Latest news- noon PDT, 3/19/2023- Zurich-based investment bank UBS has made a deal to buy failing investment bank Credit Suisse, in Switzerland, reportedly for about a billion U.S. dollars. This will help stem the fear of bank failure contagion in Europe, and around the world. Here's the Reuters news report on the deal, from a little over an hour ago.
So here's how I compare this the 2023 Bank Crisis "landmarks" to the 2008 Great Recession:
Bear Stearns/March 2008- 2023 version- Collapse of Silvergate bank about 10 days ago- This "crypto friendly" bank out of San Diego was allowed ot collapse, possibly to send a message to the banking world to stay away from crypto.
Lehman Brothers collapse/September 2008- 2023 version- Silicon Valley Bank collapse- SVB was shut down a week ago, after a two day bank run, and taken over by the FDIC. This was followed in a couple of days by the collapse FDIC takeover of Signature Bank, another "crypto friendly" bank. The FDIC, U.S. Treasury deptartment, and The Fed (Federal Reserve) joined forces to say that depositors will get their money back, and later agreed to pay back those who had uninsured accounts (over $250K per account). Somewhere between 85% and 95% of SVB deposits were not insured. Bank stock shareholders and bond holders expected to lose money, but may get something from the sale proceeds.
AIG problems/Sept. 2008- 2023 Version- First Republic Bank- Days after Lehman Brothers was allowed to collapse in 2008, AIG, a large investment bank, was bailed out, citing a systemic risk to the whole banking system. This is where the "too big to fail" idea was born, or at least popularized. After Silicon Valley Bank and Signature banks were allowed ot collapse a week ago, the top 5 large U.S, banks, and a few second tier big banks, all pitched in, $30 billion total, to deposit in New Republic Bank for 120 days, to help stabilize it. which was also seeing withdrawals and a huge collapse in the stock price.
In the last week, the banks of the United States borrowed 464.9 billion dollars (see article in last post), plus the $30 billion that was loaned to First Republic by the other banks. That's just under a half a TRILLION dollars in loans to try and restore faith in the U.S. banking system.
I think now we will see many more banks, smaller regional banks, that are struggling, and when they reach a crisis point, they will be bought out by larger banks. This makes the overall system less stable in the long run. But that's how things work.
I found the perfect song to go with this post... Can't go wrong with the Red Hot Chili Peppers and "Give it away now." That's what The Fed and the U.S. government is doing for the banks.
According to this article from the U.K. newspaper/news site, The Guardian, U.S. banks have borrowed $300 billion from the Federal Reserve, to shore up their books, and cover the rising number of withdrawals. $143 bllion of that was loaned to the holding companies of Silicon Valley Bank and Signature Bank, to cover the money owed to depositors. The Fed did not disclose which banks got the rest of the money.
In addition to that money, another $153 billion was loaned through the traditional Fed Discount Window, and another $11.9 billion was loaned out in the new program, just set up last Sunday, to allow banks to borrow against assets to cover outflows to depositors. These amounts total $464.9 billion in loans, just in this first week of the banking crisis.
In addition to all those loans from The Fed, several large banks also loaned a total of $30 billion to First Republic Bank, whose stock dropped precipitously on the fears of contagion in the banking system. That puts the total amount loaned out, in about a week, at $494.9 billion, to keep the banking system afloat.
In Europe, it's been widely reported that $54 billion of loans went to Credit Suisse, to shore up that bank.
Here's Ray himself, in a short interview about the story of how he started riding a mountain bike, cleaned up his own life, and then started building an indoor mountain bike park.
Housed in an abandoned factory in Cleveland, Ohio, the idea began in 2004, and Ray's MTB has been growing and evolving ever since. Ray describes it as a sort of a "Field of Dreams" story, referring to the 1989 movie starring Kevin Costner. Ray had the idea, started building it, kept building it, and years later sold the place to Trek, and then later built a second park in Milwaukee. That second park closed, but the original Ray's MTB is still going strong, drawing mountain bike riders, and some BMXers from around the country.
It's one man's dream, that became a community, and not scalable from a major corporate standpoint. But that doesn't matter, here's one of those rust belt factories that closed down in the 1980's or 1990's, that is now a legendary action sports iconic spot, in the unlikely city of Cleveland, Ohio. Personally, I think there's a lot to be learned by the success of Ray's MTB in the world of adaptive reuse, and finding new purposes for old buildings.
According to this report by The Real Deal, the total amount of CMBS bonds created has dropped by 85% from a year ago. Los Angeles and Orange County have loans on 400+ commerical properties maturing this year (2023), meaning new financing a much high interest rates for property owners. This short article, from Feb 22, 2023, says that new commerical real estate deals (big enough to require CMBS financing, I'm assuming) has basically ground to a halt. This report was three weeks ago, before the collapses of Silvergate, Silicon Valley Bank, Signature bank, and the current floundering of Credit Suisse in Europe. I think it's safe to safe there will not be many large building deals happening anytime soon.
This is why I've been drawn to blog on this subject. I'm not an expert, I am quite the opposite. I spent over ten years on the East Coast, driving past post-apocalyptic looking factories, warehouses, and other large empty buildings. The there's the well known rise in dead malls, and the Retail Apocalypse, which has closed down way over 20,000 retail chain stores in recent years.
I keep wondering how we can put some of these facilities to a better, profitable, and productive use in the years ahead. My reason for writing this blog is to dig into this whole issue of finding new uses for old and abandoned properties. I'm not going to look just at the mega-deals open to the super wealthy, but also to the possible rehabilitation of all kinds of offices, retail storefronts, industrial buildings, homes, and other properties that are now empty, or soon to be empty, around the country. This is a HUGE trend throughout the U.S., and probably many other countries. So I'm going to look at what different people have already done to repurpose buildings, the Big Picture (economy, recession, where we're headed), and see what other potential ideas I may come up with, to make good use of empty and unused buildings of all kinds. That's the basic plan to get this blog started... after getting sidetracked with the bank collapses.
It's Wednesday, March 15, 2023, and the banking crisis has crossed the pond, after three U.S. banks, including the #2  biggest bank collapses in U.S.history, in the last week. Now Credit Suisse in Europe is on the ropes, gasping for air.
It has been widely reported, including this report on CNBC, that London-based bank HSBC bought Silicon Valley Bank U.K., for the sum of...get this... one British Pound, or about $1.22, if you round up. This deal allows the deposits of U.K. depositors of the bank to get their deposits covered, so they won't lose money. The equity in Silicon Valley Bank has been reported to be about 1.4 billion pounds, or $1.7 billion U.S. Not a bad deal, $1.22 for a business with $1.7 billion in equity. The madness continues...
In this 32 minute video, Daniella Cambone of Stansberry Research interviews Dr. Nouriel Roubini, often referred to as "Dr. Doom." He is the author of Megathreats, most recently.
"There will be massive disruptions in the next decade"
-Nouriel Roubini, in the interview above
Daniella Cambone not only does a lot of investment and economic related interviews, she does some of the best interviews. Dr. Roubini is known as "Dr. Doom" because he looks at all the potential risks lying ahead as we move forward in this world. At this point in time, as they talk about here, we're in a world of far too much debt, there are major economic shifts happening, major technological disruptions coming, and major geopolitical risks as well. Dr. Roubini does a great job of explaining how the Silicon Valley and other recent bank crashes fit into the big picture, and where things are likely to go from here. He speaks to the simple facts and risks that most people want to ignore. If you really want a Big Picture look at where we are, as nations of people in today's world, watch this interview.
It was a really long, scary weekend for the banking world. Now it's just after noon on Monday, PDT. First Republic Bank stock has been tanking all morning (down 69% in 5 days) and Zion Bancorp is down 36% in 5 days. One report said First Republic is getting funding from J.P. Morgan. Meanwhile, it appears tens of billions of dollars have been flowing into U.S. Treasuries (huge drop in 10-year T-bill yield, 3.97% to 3.55% since 3/7, which signals rise in price due to high demand), and Bitcoin, Ethereum, gold, silver, as well as platinum and paladium (so for all the tweekers out there, it's time to sell those catalytic converters you stole). Where is all that money coming from? Banks, apparently, out of bank deposits and into "safer" investments. The Big Boys (and Girls) are spooked on banks, it seems. It's a traditional flight to safety, it appears, for businesses, major investors, and individuals alike. But there no reports of actual lines of people at banks, that I've seen. So things seem to be calming down, for now.
There was a Fed closed door meeting this morning, no word on that. The Fed's FOMC meeting, where they decided interest rate hikes, or a pause, is next Tuesday and Wednesday.
Silicon Valley Bank collapsed and was taken over by the FDIC a little over 48 hours ago. They are auctioning off (or trying to) the assets, to pay back depositors, as I write this. Tech start-ups around the world, people in the U.S., and many large businesses, are all trying to figure what just happened, and how safe their own money is in whatver bank or banks they use. That's legit. Three banks have collapsed in about four days. Silvergate, Silicon Valley Bank, and Signature Bank.
Disclaimer- check the link on the right for the Disclaimer for this blog
This video above, by Heresy Financial, has the best overall look at what's happened, what it means, and where we go from here, of anything I've seen at this point. It's under 20 minutes long, and I, personally, just sent the link to every business owner I could think of on my social media list. Watch this video, and do your own research to figure out the best course of action in your own circumstances.
I've been watching The Money GPS since about October or 2019, nearly every day. This is more actual data on the SVB collapse, and more solid info, in addition to the video above.
Here's what else I've learned, as of 8 pm PDT Sunday evening (3/12/2023).
One- There IS a Federal Reserve meeting tomorrow, Monday, 3/13/2023, in Washington D.C. at 11:30 am EDT. The info is on their website (link in the last post).
Two- The FDIC has been trying to auction off Silicon Valley Bank, or its assets, since yesterday, and that auction was still going on last I checked. Any proceeds are supposed to go to SVB depositors as soon as possible.
Three- All the depositors of SVB are supposed to get access to the $250,000 that's insured by the FDIC tomorrow, Monday, 3/13/2023. I've heard that 85% to 95% of the deposits WERE NOT insured, they were over the $250,000 amount, since these are businesses, many who had millions of dollars in SVB. So many tech companies MIGHT still have issues with day to day business operations, like payroll, paying suppliers, and everyday operating expenses. No one seems sure just how much money business depositors will have access to tomorrow. Maybe just $250K, maybe more. It depends on the auction to some extent.
So tomorrow morning, Monday, 3/13/2023, could still be pretty sketchy in the financial world, depending on what happens overnight. Time will tell.
In this CNBC report, still less than an hour old, The Fed, The Treasury, and the FDIC have said they will allow Silicon Valley Bank and Signature Bank (also closed over the weekend) depositors access to all their money on Monday. They aren't bailing out the banks, but they are bailing out the depositors. Since most of the SVB depositors are good sized businesses, from Roku and Shopify, to tech start-ups, many have multiple millions in the bank. But the FDIC only insures each depositor up to $250,000, as I understand it. So about 95% of the deposits in SVB were not insured by the FDIC.
Because of this action (by the very people and agencies that caused the fucking inflation and interest rate crisis in the first place) those businesses will be able to make payroll, pay suppliers, and keep functioning as businesses. That's good. If this step had not been taken, it would be like telling U.S. businesses, "Yeah, you're money may not be safe in your bank." That's not cool, and there would have been a major banking meltdown. Check the article linked for the details on the plan to wind things down.
There will still be a lot of other issues in the financial world in coming months, due to high interest rates, bad debt and unrealized losses (low yield treasuries, MBS, CMBS, ABS, CLO's, maybe SLABS) on the books of banks, hedge funds, and othe institutional investors, but this particluar crisis, providing things go pretty much as planned, should calm down, and the business world keeps functioning. That's good.
Well known ans respected financier Bill Ackerman has tweeted that he expects potential bank runs starting Monday (March 13) morning, if the FDIC is not really clear about when Silicon Valley Bank customers will get access to their funds that are over the $250,000 FDIC insured limit. Why he sees the chance of multiple bank runs, and his idea of a solution to stop them, are in this article on thestreet.com.
A "Statement of Support" has been signed by more than 100 venture capital firms and investors, according to this article.
A closed meeting of the Federal Reserve Board of Governors has been scheduled for Monday, March 13, 2023, at 11:30 (EDT) in Washington D.C. It is expected that the meeting will be held under "expedited circumstances," according to this notification on The Fed's website.
Last year, maybe mid-June, as The Fed got serious about raising interest rates, I went looking for a good source of timely real estate information. Reventure Consulting is the best, overall, national U.S. real estate info I've found. He's made unpopular calls for months, since I've been watching, and they are pretty much all coming true. He
Nick looks at the latest data, has a long term perspective, and has done a lot of research on the history of real estate and economic markets in the U.S.. Even more impressing, he's spent part of the last 2-3 months (winter of 2022-23), actually driving around parts of the U.S., seeing with his own eyes what's happening in several regions. This is an incredibly well done (if depressing) look at the Silvergate and Silicon Valley Bank collapses, and how they fit into the economic timeline of history. I believe this video is well worth 20 minutes of your time, if you run a business, have any investments, or just want to better understand why a couple of bank collapses in other parts of the country matter.
I've been watching this guy's videos almost daily since late 2019, shortly after the Repo Market Crisis. Good solid information from original sources in most cases, or articles citing original sources. Here's his initial take on the SVB collapse, one day after the collapse of SVB.
Black swans surfing in Australia. In my opinion, the Silvergate and Silicon Valley Bank collapses this past week signal a shift in the drama that is The Tumultuous 2020's. We've made it through Act 1 of this play, now comes Act 2, where everything goes to shit. Hopefully I'm wrong. But it will be entertaining, either way.
Investing in Stocks, bonds, commodities, NFT's, aka Non Fungible Tokens, and other investments that may be written about in this blog, are high risk activities, and you can easily lose money. Please do your own due diligence to learn about this technology, crypto art, and any other potential investment made in this blog. This blog is for entertainment and educational purposes only, and nothing I write or say should be taken as advice. Consult experts in any area needed before making investments.
I am not a certified financial planner, a certified financial analyst, a CPA, an accountant, or a lawyer. The contents of this blog are for educational and entertainment purposes only, and do not constitute financial, investment, accounting, or legal advice. Please consult a lawyer, accountant, CPA, certified financial planner, or other need professionals, as needed, before making any investment, financial, or legal decisions. Do your own proper due diligence before making any investment, financial, and/or legal decisions. By reading and/or using this blog, or any post within it, you agree to hold me harmless of any ramifications, financial or otherwise, that happen as a result of acting on any of the information in this blog.
The views expressed in this blog are my own. The authors, speakers, or other sources I share or quote in this blog are those of the individuals, and my use does not mean they endorse my views and ideas. I consider myself a futurist, someone who studies and analyzes trends in economics, society, business, and other human endeavors. I express my opinions on how these trends and forces may play out in future months or years. I do my best to give what I see as the most likely future outcomes, but there are always many other factors which may change the course of events as we move forward in time. Please use your own best judgement, and that of experts you trust, to make any decisions regarding future business, investments, financial or other decisions.
Here's the long version of the Jenga tower scene from the 2015 movie, The Big Short. We're heading into another period where these basic ideas will come into play. In this scene, he explains Mortgage Backed Securities (MBS) and Collateralized Debt Obligations (CDO's), and how subprime mortgages screwed them up, leading to the eventual collapse of the MBS's, and the U.S. housing market.
Since the Great Recession, there has been much less of those techniques used in the home mortgage market. But financiers know a good thing when they see it. So the loan bundling techniques explained in this clip above have been used since 2009 on student loans (Student Loan Asset Backed Securties- SLABS), auto loans and credit card debt (Asset Backed Securities- ABS), commerical property mortgages (Commercial Mortgage Backed Securities- CMBS), and business loans (Collateralized Loan Obligations- CLO's). The student loan SLABS, over $1.3 trillion in loans, have disappared, you can't find out who's holding them on the web. Maybe the U.S. Treasury is going to eat it on these? I can't figure that out.
But the others are all hitting a point much like in 2008. Except this time we have the ultra-low interest rate environment (2009-2021) followed by a high, and rising interest rate environment, which makes things even worse. Even if a bank or investment fund holds solid, but low interest U.S. treasury bonds from 1-3 years ago, that can get banks in trouble now. Silvergate and Silicon Valley Bank had to sell those low interest bonds to raise money, taking a loss they didn't want to take until the bonds matured. Those two bank collapses are the start of this. How big and how bad will the total shake-out be? Only time will tell. But there will definitely be more big bankruptcies, banks and major businesses, to come. That much seems certain, right now.
Here's the full clip of the Michael Burry scene, with Margot Robbie in a bathtub, explaining the mortgage bonds.
What she explains is this clip about mortgages, has been done since 2009, with student loans, auto loans, credit card loans, commercial mortgage loans, and commercial operation loans. Basically, the Wall Street financiers have used this same basic technique for every other kind of loan, except home mortgages, since 2009. And now the "Jenga towers" are beginning to collapse. This is about to get real interesting...
OK, I started this blog a few days ago to "collect" ideas for reusing commerical properties, aka "adaptive reuse," and happenings in the commercial real estate markets. It's just a growing interest of mine in these weird times. Then all this shit started happening with Silvergate and SVB, so the blog's a bit sidetracked already. But "adaptive reuse" will be a big theme, as thousands more commercial landowners go bankrupt, default on loans, get foreclosed on, or simply hand buildings back to the lenders, in the next 2-4 years. I'll get back to that idea... in time.
Jim Cramer, this morning, March 10, 2023, on Silicon Valley Bank (before its closure was announced) wisely hedges a bit, with a "wait and see" attitude. But he does say, "...Silicon Valley Bank is unique..." And he's right, SVB had a very unique niche in the banking world.
Jim Cramer, March 11, 2008, with his not-so-great call, "Bear Stearns is fine!"
Don't take my word for it, in the report above, less than an hour old as I share this, CNBC reporters call this a "bank run," and also say Silicon Valley Bank is "the backbone" of Silicon Valley high tech start-up financing. The bank's stock was down over 60% during today's trading session, and has dropped another 21+% since the close. Multiple reports speak of venture capital firms telling their start-ups to pull their funds out of the bank, just in case. This is unfolding overnight, going into Friday (March10, 2023).
Blogger's note- Friday, March 10- It's now the next morning. Trading has been halted on Silicon Valley Bank, whose stock dropped from 267.90 on Wednesday, to around $39 a share overnight. After a very traditional run on the bank happened over the last few days, and in the latest report, Silicon Valley Bank has been closed. The FDIC will pay insured depositors in the next week, and will sell assets of the bank to pay back uninsured depositors in time, according to this CNBC report. March 10, (10:17 am when I'm posting).
This follows the closing and wind down of Silvergate bank, on Thursday, March 9, which is now best known for being a very crypto-friendly bank, and one that had exposure to FTX before its collapse.
"Canary in the coal mine"- For any of you who don't know, that phrase comes from coal miners taking a canary, in a cage, into coal mines in the 1800's and 1900's. Because mines can become filled with toxic gases, fatal to both humans and birds, if the canary died, that meant gases were building up, and the miners had to get out. That's what they did before toxic gas detection meters existed. When something happens that may have further repercussions, it's often referred to as a "canary in the coal mine."
This Forbes article explains that while Silvergate and Silicon Valley Bank had very different reasons for getting into trouble, there is a common theme, and that theme most likely affects many other banks. Over the last couple of years, banks had to invest in bonds that had historically low yields, because interest rates were so low. So banks of all kinds bought U.S. government bonds, or other bonds that paid back 1% or slightly more per year. Since then, inflation rose, and as we all know, The Fed raised interest rates. Now those billions of dollars of 1% or 1.5% bonds are worth much less. But the banks haven't written down those losses. If the banks have no issues, and business goes along normally, they will hold those bonds until they mature, take a loss, and then buy bonds that now yield a 4% or more return.
But, if the bank has a crisis, and has to sell those bonds before maturity, they may take a much bigger loss, perhaps 20% off the value of those bonds. Writing off an extra 20% loss, on tens of millions or billions of dolars in bonds, is a big hit to a bank's balance sheet. Even for Silvergate, it's believed the bond losses, and MBS (Mortgage Backed Securities) losses, not the exposure to crypto, is what really hurt the bank's botom line and made them more vulnerable to other problems.
Because virtually all banks bought really low yielding bonds over the past couple of years, this issue could also affect other banks. Time will tell which ones, and how much of an issue this may be.
There's going to be huge amounts of money moved this weekend, as all kinds of investors try to figure out how safe their own banks are, and trying to find safer places for their money. Next Monday, March 13, 2023, will be interesting.
In this video above, "Nobody Special" cites reports of Google asking workers to share desks to increase "office efficiency," for those coming in to the office two days a week.
Google getting Monday/Wednesday workers to share desks with Tuesday/Thursday office workers is not earth shattering news in today's world. But our host above follows this up by reporting on a $1.7 billion commercial loan default Columbia Property Trust, a Pimco owned company. He follows that with a story on defaults on two more loans on downtown L.A. buildings by Brookfield Properties. Those defaults on the Gas Company Tower and 777 South Figueroa Street, both in downtown L.A., added up to $784 million defaulted on, according to this report. That's nearly $2.5 billion in defaults on large building financing, in under three weeks. The properties are located in San Francisco, New York, Jersey City, and Los Angeles. This report is from late February.
Following the report above, on March 3rd, I believe, came another default report. This one, explained here on Bloomberg TV, tells that Blackstone defaulted on $567 million commercial mortgage backed securities CMBS), on office properties in Finland. First of all, this is Blackstone, alluded to by some as the "evil empire," and one of thhe most powerful and well connected businesses in the world. In the news segment linked, it's explained that the offices financed by these securites were averaging about 45% occupancy. Low occupancy rates due to work-from-home and other issues, combined with rapidly rising interest rates, and the use of "flotaing rate debt" to finance these buildings, is turning regular refinancing into crises. As these short term financing securities come up for refinancing, the higher interest rates are often tripling monthly payments for property owners, leading to major decisions on what action to take next.
Obviously, because floating rate debt has been a popular way to finance large buildings in the recent low interest rate environment years, other companies will have much higher payments, as the time to refi comes up. Will we see more, similar, large defaults? Or will this be a short spike, an outlier? Time will tell.
Is this the end for commerical real estate? Or even civilization itself? Do we all need to go build crazy rat rods and dress in black leather like in the original Mad Max movie? No I don't think so. But there's a lot more change, and more crazy times ahead, in my opinion. This video did give me the idea for this blog, though.
I'm a blogger, one of the millions of bloggers that toss their personal thoughts and ideas out here on the interwebs. I'm not a professional blogger, I don't make a living blogging, but I have been at it for over 14 years now, and my top few blogs have pulled in over 300,000 pageviews. So some people check out my ideas at times.
I've been an amateur futurist, and and economics geek, much of my life. Since I was a kid, I've tried to figure out where things were headed, where society itself was going. As a Gen X kid in the 1970's, life moved really slow, compared to our current world. Change was a slow, gradual process back then, major changes took years. Over the 45 years since, I've run into a few theories of long term trends and cycles that have helped me get a better picture of where the future is likely to take us. During that time, as us older folks know, things began changing at most every level, and the rate of change keeps getting faster and faster.
I've been blogging about the current recession that we seem to be heading into, in posts like this and this, since 2019. By the late 2010's, it became apparent to me that a whole lot of change, and major inflection points in economics and society itself, were coming in the 2020's. I predicted a major economic downturn would be coming in early 2019, and hinted at it in early 2018.
But now we are beginning the 4th year of what I call The Tumultuous 2020's, and appear to be heading into a seriously deep and gnarly recession. Not what?
The idea of finding new uses for old, abandoned, or unused buildings, has fascinated me for more than a decade. I wound up in central North Carolina during the Great Recession, a place I'd never lived before. The only job I could find there was driving a taxi. Day after day I drove past the old, crumbling textile and furniture factory buildings, imagining what could be done to revive them. I often sat in front of an abandoned warehouse building, alone in my taxi, dreaming of building a bike and skate park in it, something like Ray's MTB in Cleveland. While I never got any of those ideas off the ground, the rehabilitation of unused and abandoned buildings is something I still think about. I believe it will be a major part of the change in this decade, a continuing period of extensive change throughout society.
I went looking for the blogs and YouTube channels about adaptive reuse of commercial buildings, just out of curiosity, and found there weren't any. There are several scholarly articles, a few business articles, and a number of videos. But no one has brought these ideas together in one place. So I decided to do it. We'll see where this all goes. As real estate, housing and commercial, crashes in many parts of the U.S. in 2023, this is a trend that will definitely grow in the coming years, once business people find new ideas and banks feel safe funding commercial real estate again.
There's a lot to dig into in this area, and lots of new ideas are needed. I like to dig into weird stuff like this, and I'm an idea guy. So here we go, hopefully some of you will find good posts in this blog, and related content as it heads forward. All aboard! Let's see where this idea will go...
