commercial real estate is in some serious trouble right now uh along with residential real estate but you know commercial real estate I don't know the scale of the bubble it's harder to get information on Commercial Real Estate I know that a building recently that was in uh New York City that sold just a couple years ago for $65 million just went for 16 uh and that is a pretty large price decline uh the problem is uh re as you know commercial real estate is when when you go to refinance the bank is going to


value that piece of property not by the structure and the location as much as uh the rental income that is coming from that property and so after covid we've had these very high high vacancy rates uh occupancy might only be 50% on a building where normally it would be at like 92% or 96% and uh here we are at 50% so the bank takes a look and then you know people with with it at 50% any new uh offices that get rented or whatever retail shops uh get rented at lower rates because there's competition to get


these spaces filled and so uh the the uh amount the dollar amount of rent is going down and then you've got all these vacancies and so when the when you go for a you know you were just telling me uh that 30 years don't exist and and 15 years so what is the uh term on your typical uh commercial real estate loan and uh you know what kind of trouble do people get into when the building appraises at half what it did before and they've got to roll over a loan at these higher interest rates trades with much


higher payments well and that's really double uh where you know a lot of people are so a lot of the real estate uh the commercial loans are at about 3 and 3/4 to 4% and now we're sitting at you know a solid 8% so anybody coming up for refinance they're literally looking at the the interest portion of their their debt is doubling but that's not really the problem so you have two scenarios that play out with commercial real estate and the terms Mike typically are five and 10year terms and you know um


over the last five years no one wanted to give a 10-year term well very few wanted to give a 10-year term because they knew they were at historically low rates and they were banking on this rate increase this hike uh but really there are two types of you know U situations here with the commercial one is a Rec recourse uh borrower and the other would be a non-recourse borrower so meaning the recourse borrower is where the bank gave them the money whether it's an owner occupied building or not meaning


that the borrower maybe has their business located in that commercial real estate versus it just being for speculation for tenant speculation so that recourse borrower is really the one that's in the most trouble right now because you know individually when a borrower buys a commercial property um not only is the bank you know going after them signing a personal guarantee but they're cross collateralizing all of their assets that they have and that means their businesses sometimes their spouses


get included in the in the uh note uh you know as far as guarantors and they it can even extend to their home so these are the ones that are really in the biggest trouble that are up for refinance that are struggling to do so the non recourse simply turn their keys back in and for a lot of these borrowers they're only out their risk is just their deposit which may be you know 20% 25 30% of what they originally purchased they're kind of capped out at that down payment that they you know you


know when they originally purchased the property sometimes investors are even the ones that help to raise that money so you know that's diluted on the large larger scale to a lot of these borrowers They Don't Really they just turn the keys back in but let's just talk about the recourse borrowers because that's a lot of America right so these are the ones these are the people that you know tried to do a little bit better for themselves maybe wanted to own the building that their business is in and


maybe they have multi- tenants they only occupy one space or maybe they're occupying the whole building and their business is just down over the last several of years so now they have to refinance that property they have to re-qualify all over again so if there if the bank is analyzing that property from a cash flow uh basis and it's not cash flowing or there's rent delinquencies or vacancies they might not even have an appetite for refinance at all and a lot of the different classes of real estate


the banks throughout time they get overweighted in certain classes so a lot of these that own the office space Office Buildings even if you have the ability to repay it they're not comfortable with the office space at all and they'll require that uh owner that building owner to come up with a huge amount of cash to refinance and it could be millions of dollars in cash out of pocket which the owners may not have and the rates are going up and the the whole rules just um are going to change and


and I think that what we have what has happened here in the last several decades Mike is we have glamorized real estate investing and we've glamorized it to the point to think that over the last 10 or 15 years there really hasn't been any risk because interest rates have been low and the economy has been chugging along but I think everybody knows especially the banking sector they know that it's not as rosy as you know mainstream media is putting out and they're the ones that are looking at


their assets going look now's our chance guys we need to you know we need to restructure this we're or we're we're in trouble and and Mike I know you're prepared to show some information on the banking you know uh sector but that that's really it's a mess what we have going on right now is a disaster in the commercial real estate space especially if you're an office uh building holder and now I'll just segue into this just briefly um on white house.gov recently


they just published a fact sheet where the Biden Administration what they want to do is they've they're putting in play this uh you know Rehabilitation here we go October 27th but what they want to do is they want to convert they know the banks are in trouble with office space so what they put was this plan out to convert commercial Office Buildings into residential and they want to kind of incentivize this whole plan the problem is is when the government I don't care who the administration is but when the


government shows up and says hey I'm here to help we can just pretty much you know go oh gez here we go right and and and it never really works out well here's the problem Mike it is common knowledge I mean you can Google search this you can check it out we are going to be in a glut of of uh multif family housing what the government's plan to come up with converting these Office Buildings into multif family housing is probably the worst idea that I've heard yet in the near term considering the


fact that we have over a million in production right now that's going to hit the market in the next 12 months of multif family housing all over the place cranes have been occupying the skylines building apartment buildings and they're now getting you know these apartment operators are now realizing they need Capital calls they can't even continue their Construction in some cases and now they're going to be looking at some of the highest vacancy rates we've seen in multif family housing in decades so you


know I I I think you know that's just the the tip of the iceberg but one more thing before I'll let you go back into the charts this is even crazier a a lot of people think that the the housing market and we're showing it's not as solvent as You' like to believe because FHA now has a new plan they just put out for comment in May um they have this this plan because they know that all the bailouts haven't worked they know that um you know all of the forbear mortgage forbearance hasn't really worked we're


now looking at FHA delinquencies and fjj is the new subprime lender in my opinion um they're the lemman brothers essentially you know the governments the lemman brothers back in the leading up to the OA crisis with subprime and and basically what's happening now is we've got almost 10% delinquencies in FHA despite all the bailouts despite the mortgage moratoriums um and now the FHA just came out with this new program they want to Launch where they take I think up to $11,000 off of people's mortgage


payments as if the 40-year casting the 40-year mortgage wasn't enough taking 30% of the Mortgage Debt putting it on a second you know Mortgage in the back interest free wasn't enough now they want to drop PR their mortgage payment by up to $1,000 a month for FHA borrowers struggling and they want to do this for a minimum of three years and a maximum of 5 years right here it is FHA mortgage reduction plan so you know this is this is brand new stuff that they're hoping this administration's hoping to get out by


the end of the year Mike that you know that they will be able to hopefully continue their uh Administration in the uh 2024 election yep it's um you're blowing a balloon up and it develops a hole and you slap a Band-Aid on it but you keep on blowing they're just making this bubble bigger and bigger and bigger and they keep on slaping Band-Aids on uh you know any problem that develops but uh that just the Band-Aid that they're creating just puts more air in the balloon and uh it's it's it's going to end up being


disastrous so anyway uh this was where we were back in 2008 uh when Real Estate crashed so Bonds were not in a hyperbubble they were be becoming uh you know overvalued but this was the is the trigger that started it all uh you know and I made videos on this as soon as they started raising rates this is the year-over-year uh percent change in the rate increases and it's like Powell didn't seem to understand that raising the rates a quarter point or a half Point uh uh from when you start from 8% like we did back in the uh uh


70s uh or 880 uh up to you know you go up uh half a point if you're at 10% you go up uh half a point you're talking about a 5% year-over-year uh change and uh here when you're talking about 0.1% and you go up half a this was you know this is a 4,500 per year-over-year rate increase is where this chart Peaks and that rate of change is what has upset the apple cart and I'm surprised that things have uh lasted as long as they have that the economy has held together for the past uh year and a half


but um I I think uh you know by the time we get the rate cycle started in March so we're coming up on uh two years I believe of this um rate hiking and um uh it's all going to uh come to an end soon I believe Mike you know what the the craziest part about this chart is this this is this is almost how silly it is right this is the Federal Reserves chart yes I make these on the Federal Reserves website I mean when you look at this chart I mean this is the Federal Reserves chart they created this chart


so when you look at it you say what and what were they thinking