Something that I’ve been following closely all year is suddenly gaining mainstream attention…

And that’s trouble with commercial real estate loans.

I’ve been wondering when and how the U.S. government and banking system would respond and step in…

In a moment, I’ll tell you what happened and what it means in the context of the 18.6-year real estate cycle.

If It Bleeds, It Leads

It was just so predictable.

First, that the media would do their utmost to make it their latest “if it bleeds, then it leads” news story.

Source: Bloomberg

Granted, these commercial property loans are a big deal. And they are a symptom of the ridiculous covid-enforced lockdowns which changed the face of the white-collar job forever.

Nonetheless, $400 billion of debt maturing this year isn’t chump change.

What was of more interest to me was the timing aspect.

Because should history repeat itself, then the 18.6-year real estate cycle shows us that the time for a land price-led collapse in the economy today is most unlikely.

Instead, with the land market peak years away, there was always going to be the scope on behalf of banks and governments to work these issues out.

So, did I panic about this? No. Instead, I trusted the real estate cycle to turn on time. And I waited.

I Was Proven Right

And here we are, both the U.S. bank regulators and lenders are combining to sort out these debt restructures. From the recent Bloomberg article:

The top U.S. bank regulators are asking lenders to work with credit-worthy borrowers that are facing stress in the commercial real estate market.

Financial firms should “work prudently and constructively” with good clients, the government agencies said in guidance on Thursday. The statement from the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and National Credit Union Administration updates guidance on workouts that the watchdogs issued in 2009.

The new guidance recommends that banks grant short-term loan accommodations, which include agreeing to defer payments, accepting partial ones, or providing other assistance.

It’s always the same: replace older debt with newer – preferably with lower interest – debt.

For now, there is enough liquidity and credit creation happening to allow this. Know, too, that the U.S. government would be adding further assurances behind the scenes that things will not be allowed to get out of hand.

The land market must be supported at all costs.

Therefore, it will be supported.

That is what 200 years of real estate cycle history in the U.S. shows me.

So were my expectations about the timing and eventual solution to this issue met?

Yes. It’s just so predictable.

More importantly, though, what were you thinking about this? Write me at [email protected] to tell me your thoughts…

Did you bet against commercial U.S. property, or did you fall for the narrative of imminent property market collapse?

If so, you are on the wrong side of that bet now.

Imagine if you had the confidence of knowing that the unique timing of the real estate cycle can let you buy the best commercial property exposed stocks at lows instead.

It must be nice!



Phil Anderson
Editor, Cycles Trading with Phil Anderson