by Marlon Weems Marlon Weems No Comments

Wall Street Growing Bearish on Commercial Real Estate

Wall Street analysts like Morgan Stanley think commercial real estate may be the next “Big Short” in the same way housing was. In fact, some hedge funds have begun to place bets on a coming collapse in real estate, reminiscent of the financial crisis. But instead of betting against housing, this time they’re going all in that the  CRE market collapses. The following charts explain why:

A Collapse in Department Store Sales

Although commercial real estate prices are above the highs they set before the housing crisis, malls and retailers haven’t been as fortunate. The reason is that malls rely on big retailers such as J.C. Penney and Macy’s. With falling sales, retailers are closing at the highest rate since the 2008 financial crisis.

Source: Bank of America

2016 Department Store Closings the Highest Since 2008

Most malls depend on at least one big retailer. When an anchor store closes, foot traffic drops, which in turn hurts other retail occupants. According to Morningstar Credit Rating’s estimates, roughly 40% of the loans due this year won’t be paid. Commercial real estate prices have been on the upswing since 2009, but increasing vacancies have caused prices to stagnate.

Source: Credit Suisse

Commercial Real Estate Prices May Have Peaked

New rules came into effect in December requiring banks to hold at least 5% of their loans on their books, which has caused a slowing of loan growth.

A number of retail analysts expect about one-third of  US malls to close in the coming years.

Source: Green Street

But Don’t Throw in the Towel Just Yet…

Remember – analyst calls are only estimates, that could end up being too conservative. For example, if commercial real estate investors become more willing to accept lower returns or if the industry’s need for financing turns out to be lower than estimates, these predictions may be overblown. For example, Blackrock thinks U.S. commercial real estate recovery has room to run.


They see US commercial real estate delivering attractive total returns with interest rates still relatively low. While capital appreciation may slow, Blackrock sees the potential for property managers to add value by upgrading buildings.



by Marlon Weems Marlon Weems No Comments

The Fate of EB-5 Visa Program In Question

Later this month, the EB-5 Immigrant Investor visa program may face extinction unless Congress acts by the deadline. Even if the program survives, proposed changes could affect developers that count on EB-5 investors to fund their projects. The E-5 program is estimated to result, at least in part, in the creation of almost 200,000 jobs in the U.S., bringing in nearly $14 billion from Chinese investors. The possibility of a phase-out has caused Chinese investors to scramble to apply before the April 28 deadline.

Eb-5 Program Dominated by Immigrant Investors From China

According to Bloomberg, uncertainty surrounding the program has sparked a rush among would-be participants eager to fund projects before the deadline.  Chinese investors are estimated to make up as much as 85% of total EB-5 participation. Chinese Dominate the EB-5 Investor Visa ProgramAlthough the Chinese government has tried to prevent investment abroad, EB-5 investments from China totaled $3.8 billion last year.

To have any chance of being renewed, the program must overcome some significant hurdles. In January, several government agencies proposed new regulations for the program. Increasing the minimum EB-5 investment from $500,000 to $1.35 million may be the biggest proposed change. The changes under consideration are carryovers from former President Obama’s administration. Since then, however, President Trump has put a freeze on adopting new government regulations pending review. Comments on the proposed changes are required by April 11.