Rough Banking Seas Ahead?

[DTB]

Thought this might be thread in which to pose the question...anyone investing in CEFs or BDCs? I have small positions in a few and am looking to learn from others who may be more versant in these.

 

[The Bob]

I've been in CION (BDC) for a while now. Pays a little over 11% div.

 

[DTB]

I've been in CION (BDC) for a while now. Pays a little over 11% div.

Thanks! I've been holding MAIN, HTGC and ARCC at good prices and may be selling a property and looking at additional parking opportunities to spread the risk.

 

[Non Sequitur]

"Extend and pretend" (otherwise known as "survive 'til 25" and "delay & pray") is accelating among regional U.S. banks. Matteo Crosignani presented his excellent new FRB-NY study on this topic at this past week's Boca Finance and Real Estate conference, which was held on the Campus of Florida Atlantic University and sponsored by the FAU College of Business. Much thanks to Dean Daniel Gropper for sponsoring the conference, which had numerous academic sessions and panels related to commercial real estate. You can find the conference program and more at:
https://lnkd.in/ewexZNst

https://finance.yahoo.com/news/office-property-meltdown-starting-surface-184728438.html?soc_src=social-sh&soc_trk=linkedin&guccounter=1&guce_referrer=aHR0cHM6Ly93d3cubGlua2VkaW4uY29tLw&guce_referrer_sig=AQAAAN0N8k7cFBNj-vYw7GGitdLfBdbBXB1rhigKys2g_aBSCK89ANTYQMB4ZObmYil_hHG_3oTTAWxIrIC2aW4MNltKpF2sqH0-t8lz7nqzyFCFYNcKyFJ1X7XnGSDspOb49iCHGv0OmEYQz30i1m_9xieCPfA16xTzlKN9hcr5XJ8E

 

[Non Sequitur]

Another interesting perspective form LinkedIn:

"Billions in Silence: The Real Office Distress No One’s Talking About.

It's not where the distressed loan and asset sales are. It's where they are not.

Asset sales at deep discounts are a signal of a healthy functioning banking market, imho. The banks had a troubled asset, it wasn't worth keeping, and they had enough reserves that they could take a hit and keep on trucking. And, there was a buyer.

What has me worried is where sales are not occurring. Either because the bank doesn’t have liquidity to take a write down or because the assets have no value whatsoever.

It's the vacant office building with a $100m loan and no bidders. It's too expensive to convert (office conversions don’t work well in markets where residential values are less than $1,000 psf) and there is no tenant demand. It has no value (or negative). There is no bidder.

Or, it's an over-levered bank that can't take a hit and sell distressed assets today so it gets worse tomorrow.

Lehman didn’t fail because it sold assets, it failed because it couldn’t."

 

[Non Sequitur]

Posted by Rebel C on LinkedIn: Large Banks Exposure to CRE

 

[Non Sequitur]

The chart in the prior post may be hard to see, but you can look him up on LinkedIn. The list details banks with CRE exposure of 300%+. In the past this would have triggered action ranging from forced mergers/buyouts to flat out pad locks on the doors. He's ringing the bell because he believes the feds are kicking a can that will come due sooner than later. And the longer they wait the harder it will be to contain the fallout. It's hard for me to follow all of the particulars, but in a nutshell the feds keep changing the rules of the road (sound familiar) and are hoping the problem will solve itself. But wow, some of the numbers are just plain nuts.

 

[Terrel L. Shields]

Commercial, agricultural, and residential properties are not going to react in lockstep. It's going to be a particularly difficult dance between the three.

 

[WestMichiganCG]

I've heard that too about the community bank CRE exposure, but don't know enough either way to have opinion.

How much will the commercial real estate market’s decline hurt the banking industry?

www.bostonfed.org

https://www.wsj.com/finance/banking/commercial-property-loans-real-estate-banks-249a43b9

Midwestern MF is STRONG atm. Restaurants are an odd duck, as fast food benefited from the pandemic and they could pass along their price increases to absurd levels. Saw recently that many full-service restaurants are now about even with fast food in prices, if not better. I can get a good meal at Chili's for about the same price as Burger King, even after a tip. Interestingly, our company has done several appraisals of full-service restaurants in the past few years that are putting massive amounts of money into their property for either construction/ buildout or renovation. It is rarely feasible, so I'm not sure what to make of so many suddenly wanting to do this.

When looking at restaurants, you have to look at the construction value that also translates into business value. If I lose $500,000 in construction value but gain $1,000,000 in revenue, then I'm ahead.

 

[Non Sequitur]

When looking at restaurants, you have to look at the construction value that also translates into business value. If I lose $500,000 in construction value but gain $1,000,000 in revenue, then I'm ahead.

Great point. But can a federally regulated financial institution keep that blue sky value on the books? I know there are ways around it but generally the exposure is based on real property, or am I wrong?