There is impending doom in Commercial Real Estate and it is likely going to be painful.
This is especially the case for banks with unbalanced portfolios heavy in real estate.
And to blame for this? The work-from-home movement.
Wells Fargo occupies 700,000 square feet in Charlotte, NC. As of today, they have abandoned half of it, and plan to leave the rest by the end of this year. The property owner is struggling to refinance.
In fact about $1.5T (yes trillion with a capital T) of commercial real estate debt is going to have to be refinanced in the next 24 months at what looks to be much higher rates.
Real estate has ridden the wave of cheap and virtually free debt for a few decades and it is time to pay the piper.
Couple that with a massive shift in the use case, and you clearly have a recipe for disaster!
But I want to look at this through another lens. I think this may be a ‘skating to where the puck has been’ moment.
We are at a black swan inflection point, and CRE has been caught in the crosshairs, but I want to be an optimist.
I think this is where creativity, and innovative thinking, are going to play a critical role.
We have all that massive infrastructure, and yes, right now it is being under-utilized. I get it.
But is it forever?
I actually believe that as the world gets more technologically advanced,
as AI and VR/AR become more prolific,
and as work from home matures, we are going to crave
MORE human connection, not less.
How can CRE realign to that intersection?
What are the varied use cases to reimagine all that core infrastructure in novel ways that we are not even thinking of now?
Maybe it is more recreational, or residential, or shared office. (Disclaimer, I own a co-working space and may have some bias.)
Maybe on-shoring some manufacturing, or a myriad of things we haven’t even considered.
Downtown Detroit went through a cycle where you could acquire massive infrastructure for pennies on the dollar of just the past due taxes. The pundits said Detroit would never come back.
But it did.
I think we are going to see ingenuity and creativity, in some forms resurrecting some of the Commercial Real Estate infrastructure that is about to get battered.
It won’t happen overnight, but I am really interested to see what is next!
I have said it over and over, the most important skill you can possess as an entrepreneur is creativity, and right now the ones among us who can reimagine commercial real estate, where assets will soon be nearly given away for free, stand to benefit tremendously… if they can get it right!!
Cheers,
John
Founder of the align5 Companies, CEO of Scaling Up Coaches, and Serial Entrepreneur
Did you enjoy this content? Click below to subscribe to John’s Blog!
