Editor’s Note: Since the pandemic and the rise of remote work, the commercial real estate market (CRE) has been shaken up. It’s not all bad news, though, as there is a massive opportunity in the rubble.

In today’s guest article, Manward Press Chief Investment Strategist Shah Gilani exposes how higher interest rates are going to be the proverbial gasoline to the commercial real estate market fire.

Check out his full presentation to see how he’s “flipping” this trouble in CRE into potential profits.

– Ryan Fitzwater, Publisher

Betting against one slice of the $21 trillion commercial real estate (CRE) market has made a handful of savvy traders wealthy.

I’m talking about investors who anticipated the decline of shopping malls, which were hammered by the shift to online shopping and then laid to rest by pandemic shutdowns.

But now there’s an even bigger opportunity to bet against CRE.

Traders are raking in profits as prices of office buildings tumble due to rising vacancy and interest rates.

But what’s been made so far, mostly by shorting pools of securities or through exotic derivatives plays, is a drop in the bucket compared with what’s to come.

Everyday retail traders and investors can get in on the action. There’ll be dozens of ways to potentially make a fortune on CRE’s demise.

The crash has started… but it’s been moving in slow motion so far.

First, we saw shopping malls shut down… then offices were abandoned during pandemic lockdowns. We know that online shopping is the future and that work-from-home is the new normal.

And now the final nail in CRE’s coffin has emerged…

Higher interest rates.

It’s Coming to a Head Now

Interest rates have gone from 0% to 5.25% in a little over a year. That’s the federal funds rate – not the interest rate CRE borrowers pay.

Banks are tightening their lending standards, especially on leveraged real estate loans to landlords whose rent rolls have rolled over. That means refinancing maturing loans will be inordinately expensive or impossible.

Morgan Stanley says that with almost $1.5 trillion worth of commercial mortgages needing to be refinanced over the next 24 months, “Office and retail could ultimately plummet 40%.”

Fitch says some $5.8 billion in commercial mortgage-backed securities coming due in the next few months will not be able to be refinanced. That means there will be defaults and marked-down asset sales, leading to lower and lower prices.

Offices are experiencing record vacancies. Across the country, more than 17% of office buildings are empty. But that’s an average. In some cities – like New York, San Francisco, Denver and Los Angeles – vacancy rates in some office buildings are closer to 40% or 50%. Some buildings are totally empty, having been abandoned since the pandemic began.

Billionaire real estate entrepreneur Jeff Greene, who made his first fortune shorting subprime residential mortgage-backed securities in 2008, was asked on Fox Business News if the CRE crisis is over. He answered, “Not even close.”

You won’t believe who has been walking away from buildings because they can’t refinance them. Institutional investors, REITs and private equity players have all handed over the keys to office buildings they’ll never make money on.

For the last four decades, the CRE sector has feasted on cheap money and easy credit. It was great while it lasted… but over $1.5 trillion in commercial loans are coming due by the end of 2025.

The next 18 months will offer us an extraordinary wealth-building opportunity – the likes of which we may never see again.

It’s a tremendous setup for investors.

YOUR ACTION PLAN

In my latest presentation, I show you how I’m “flipping” the trouble in CRE into potential profits.

I also show you my strategy… the potential gains we’re looking at… and how you can get in on the action too.

All the details are here.

Cheers,

Shah

FUN FACT FRIDAY

Snow is not white. It is translucent and reflects the entire color spectrum, which makes it appear white.