Bond market expert and economic content creator, Steven Van Metre dives into the most recent large value drop on a huge office building. Most of the investors in the $277 million bond on this building will be wiped out, and even investors in the highest and safest tranche will take big losses. He cites a report about the Wells Fargo "Cash Register" building in Denver.
Reminder: Recessions are when the whole world goes on sale, and almost no one wants to buy
OK, officially we are not in recession, but... Here are a few of the big commercial discount sales in recent years.
I actually worked in this complex for a short time in the 1990's, it sits next to the 55 freeway in Santa Ana, not too far from Irvine and John Wayne (Orange County) airport.
These are just a few of the biggest properties that have sold at massive discounts in recent years, along with empty stores and dead malls before that. These sales are intentionally being kept out of the major media and search engines, to keep the "Economy is fine" narrative going, apparently.
Most of these types of sales, the bigger ones anyhow, are reported in local TV newscasts, local newspaper sites, or local business journal newspapers and websites. You need to subscribe to many of these sites to read the whole story. If you started digging, you could find many more similar sales. The point here is to simply show that quite a few sales with losses in the tens of million dollars are happening, and thousands more buildings are still under used with high vacancy rates, or sitting vacant, maybe completely abandoned, in some cases.
SOMEONE, banks, investors, REIT's, or major corporations, are taking huge losses on these sales. They are also going to a lot of trouble in the media/social media works to keep all of this out of the public eye.
Blogger's note- 8/11/2025- In an amazing little bit of synchronicity, the Los Angeles Times newspaper, this morning, has a front page, above the fold story about an L.A. skyscraper building that's in the planning process to be renovated into "deluxe" apartments. I've heard that there are a lot of structural issues to overcome doing that type of conversion, but that's great, if the developer can make it happen. I have a feeling they may run into some funding issues in the next 2-4 years, but time will tell. The "LA Graffiti Towers" are a project that lost funding, twice, and they now sit partially built, and abandoned. Click the link to learn their story.
I do most of my writing on Substack these days, a platform specifically designed for writers. Check out the companion post, "Simulpocalypse- Post #8" that goes with this blog post. Or check the main page here:
This 60 Minutes segment, from February 2024, gives a pretty good overview of the basic idea of this post, the current state of cities. There's a HUGE crisis brewing right now in commercial real estate. Anyone who follows financial markets or real estate knows about it. There's no "if" about it, it's something that will wreak a lot of havoc on many levels, at some point. It's happening now, and the biggest crisis moment hasn't hit yet. Everyone knows it's coming, it will affect the whole economy, and every single person's life in some way. And no one really knows what to do about it, this issue is that big
Black Swans and White Swans
What is a "White Swan" event? In 2007, Nassim Nicolas Taleb wrote a book called The Black Swan. The basic idea of a Black Swan Event is something that has a very low probability of happening, but has a huge impact if it does happen. A meteor 100 yards wide hitting your city is an example of a Black Swan Event. The chances of it happening are very, very, very low. But if a meteor that size did hit your town, it would leave a crater several city blocks wide, and cause massive devastation for miles in every direction, on people, businesses, infrastructure, and the local economy. It would be catastrophic to a city. By its very nature, a Black Swan Event is unexpected, it's something almost nobody sees coming.
His basic idea concerning investing, as I understand it, is to protect yourself (and your investments) against potential black swan events. Having fire and flood insurance on your house, because of the tiny chance those things might happen, is an example of protecting yourself, and your house, against the small chance of a fire or a flood. If those things happen, the insurance covers the value of your house, so you can rebuild. So that's the "Black Swan" idea in a nutshell. The Covid-19 pandemic is a great example of a Black Swan event. Yes, a few virologists, and Bill Gates, knew something like that would happen eventually. But to almost everyone, it was completely unexpected, and had devastating consequences, killing over 7 million people worldwide, and over 1.2 million in the U.S. (source: Worldometer). That's the largest recent example of a Black Swan Event.
By contrast, a "White Swan Event" is something that has a high probability of happening. It will still be catastrophic, but we see it coming, we have time to prepare, if we want to. The commercial real estate crisis is happening, slowly, steadily, and the whole business and economic world sees it coming. But no one really seems to know what to do, other than slow the process down as much as possible. But it's still going to be a major crisis at some point. Soon.
This is a huge issue, it will affect your bank, maybe even your own checking account, and it will affect the value of the home you own, or the home or apartment you rent. It's big, it's complex, and the crisis is moving really slowly, which makes it easy to ignore in our busy, everyday lives. But, like it or not, it is going to happen, we know it's coming. How will it affect your life? How can you either deal with your part of this crisis, or maybe even profit off of the chaos? That's the question a lot of smart people in real estate, banking, economics, and finance are trying to figure out these days.
This is a blog post, not a book, and commercial real estate a complicated, complex issue, so I'm going to try and explain the big picture in as little writing as possible. I'll start with the really big picture, and work down to how this affects the offices and apartment buildings in your own city or town, in your own neighborhood. As I'm writing this blog post, there's a junk hauling truck across the street, and a few guys have been carrying the fixtures and "guts" out of a recently vacant, second floor office, and throwing them in a truck, while I've been sitting here. This is happening in every city and town across the U.S., and many other parts of the world as well.
The Big Picture. If you have read any of my economic posts over the last 5 or 6 years, you know I have this Big Picture concept that I call The Big Transition. The basic idea is simple, The Big Transition is the concept that our society is in a long transition phase, we're moving out of the Industrial Age, and into the emerging Information Age. That's it. The basic idea is that simple, the Industrial Age began to fade about 65 years ago, very slowly at first. This idea was first explained well by the late futurist Alvin Toffler, in his 1980 book, The Third Wave. You can click the link for more detail on that. But let's keep it simple right now. The Industrial Age society began to break down many years ago, slowly, and the Information Age began to emerge. We are in a long transition phase between the two, at least 80 or 90 years total. That's where this crisis begins.
The Spatial Fix
The next part of the commercial real estate crisis is called the Spatial Fix by geographers. This is another big concept most people are not familiar with. But here's the simple, underlying idea. Every type of society, over decades, builds the types of buildings and infrastructure it needs to function. The Industrial Age began 350 or 400 years ago, emerging from the Agricultural Age, where most people lived and worked on farms. Over those 350+ years, factories were built, smaller businesses rose up around the factories, and around the mines, and the natural resources the factories needed. Small towns, and cities of many different sizes, emerged. Houses were built in those towns and cities, and eventually the suburbs, where factory and office workers lived. In the bigger cities, lots of large office buildings were built as well, forming the skyscrapers of the downtown districts of the larger cities. That was the Spatial Fix out of the Agricultural Age, into the Industrial Age. The Spatial Fix is the changing from one set of buildings and infrastructure to another. In our case, the Spatial Fix is the shift from the buildings and Infrastructure needed for the late Industrial Age to the buildings and infrastructure needed for the early Information Age.
In our late Industrial Age, the 1970's, for example, people lived in houses and apartments, worked in the factories and offices, shopped in grocery stores, shopping centers, and malls for their goods, and drove on local streets in town, and larger, interstate freeways between the cities and states. Every town, even small ones, had at least one factory, often more, and these were spread across the country, in towns of many sizes. Cities built the basic infrastructure and services needed, like electricity, water, and sewage systems. They also hired people for local government jobs, like police, firefighters, city workers, and trash collectors, that were needed to keep the city going.
This Industrial Age version of the United States peaked in about the 1960's and 1970's. Then, a whole range of new technologies came into play, big mainframe business computers, data processing, satellite and cable TV, wireless phones, industrial robots, cell phones, personal computers, the internet, and so on. Technology began to take over a whole bunch of human jobs, and change the way we worked and lived our day to day lives.
Because of all this technology, we were able to live much different lives. This is the key point here. We could communicate with millions more people, much cheaper and easier, with cell phones, the internet, and social media. We could share information in talk, text, photos, and video. We could move digital money around much faster than gold bars, dollars bills, or checks in previous eras. Our entire ways of life began to change as one technology after another became operational in our lives. This allowed all kinds of different types of new businesses, jobs, and work to emerge.
But there is a huge problem with this. We still had the basic buildings and infrastructure for Industrial Age life, but much of the technology of the emerging Information Age. When the factories began shutting down across this country, in the late 1970's and early 1980's, many cities became much less functional, they lost their main employers of many residents. We, as everyday people, had some of the technology of the coming Information Age, but we didn't have all the needed technical and physical infrastructure of the Information Age built yet. We had a new system with old hardware, in a sense. Our society and our way of life has changed much faster than our physical buildings and infrastructure. High technology became one of the best paying industries, but tech companies tend to cluster in a small number of large cities, they are not evenly spread out across the nation, like industrial factories were. That complicated the transition even more.
This led to two very different types of urban problems. The initial tech hub cities, originally Silicon Valley (San Jose/San Francisco Bay area), Boston, Seattle, Los Angeles/SoCal, Austin, Texas, Raleigh/Durham/Cary, and the Washington D.C. area, they saw huge growth in tech businesses, and had lots of high paid workers rise up in their regions. These high wages caused home prices and rents to soar. All those tech businesses used a lot of office space as well. Over time, more tech grew up in New York City, as well. So these regions struggled to find enough qualified tech and creative workers and good office buildings. Home prices and rents rose to levels that were hard for workers making average levels of pay to afford. So we had cities with thriving tech business, a thriving office real estate market, and high home prices and apartment rents.
Then there's the rest of the country. Most cities and towns across the U.S. had the opposite problem. Most of the factories that people worked at shut down, or their jobs were taken by industrial robots or other technology. Millions of low and medium skilled workers lost good paying factory jobs. Real estate prices dropped in those cities, and many residents left to find jobs in larger metros. Many places became "Eds and Meds" cities, with the local colleges or universities (education), and hospitals (medical), becoming the largest employers in the area.
Some cities lost tens of thousands of residents over a decade or two. Extreme cases, like Gary, Indiana, for example, wound up with over 10,000 empty houses, high crime, and plummeting real estate values. Why? Gary was built around a single huge steel mill, and the mill shut down. The thriving Industrial Belt of the Great Lakes region, where I grew up as a kid, has turned into the Rust Belt. Now 20-year-old UrbEx explorers make YouTube videos, wandering around the remains of the crumbling factories. Those were factories that I remember being busy, often working two or three shifts, when I was a kid. This change has already wreaked havoc on most of these towns and cities.
There are probably 150 or 200 American towns and cities struggling to re-invent themselves, bring in new employers, and create good paying jobs for their residents. They have reasonable rents and home prices, but they haven't been able to create large numbers of high paying jobs for 30 or 40 years. As people moved out, less people went shopping, and more people shopped online, aided by the internet, digital banking, and other technologies.
This combination of factors led to the Retail Apoclaypse, with somewhere around 30,000 individual stores closing down, between 2010 and today. All of those stores closing led to dead malls and dead shopping centers. I was born a few miles from the site of Rolling Acres Mall, in the video linked., and the first dead mall to really get famous back in about 2014. Remember The Big Transition idea? We're moving from the fading Industrial Age into the emerging Information Age. More people shop online now, and we don't need as many brick and mortar stores, so lots of stores started closing down. Not all stores are closing, but a lot of them are, particularly in the towns and cities that lost factories years ago. Following the closure of the factories, and outward migration of hundreds of thousands of people from former industrial cities, retail business slowed down in those towns and cities. Yes, this is an over-simplification, but it's a major factor in most of those store closures.
This is all part of the Spatial Fix. In the 1970's, we had all the basic infrastructure needed for the late Industrial Age. But we didn't have the infrastructure needed for the Information Age that we were about to head into. We had factory buildings that were no longer needed. We now have malls and shopping centers that are no longer needed in many places. We have tens of thousands of houses in small towns and mid sized cities that are no longer needed.
At the same time, we needed to build cell phone towers so our cell phones would work. Those got built. Also at that time, we needed to build huge data storage centers for computer systems and the internet. Those got built. The Spatial Fix is the process of old buildings (houses, factories, office buildings, government buildings, colleges, urban infrastructure) becoming obsolete, while new types of buildings and infrastructure get built in the places where they are needed and make sense. This is a very slow process, it takes decades to happen. We needed cables laid for cable TV, and later, we needed fiber optic cable networks for the initial internet. Those got built. Huge tech campuses for tech companies like Apple, Microsoft, and others, got built. Now we are getting thousands of satellites launched to fill in the blank spots of internet service. Those are part of the Spatial Fix, new types of infrastructure getting built, so the Information Age can keep growing and evolving.
We need LOTS of affordable housing in the tech hub regions. Not just apartments for growing number of homeless people, at least 90% of the population needs "affordable" housing, at many different levels of affordability. Not many people want unaffordable housing. So we need types of housing, from apartments for a few hundred dollars a month, to big, $600,000 houses for growing families of people working high paying jobs. We have huge mismatches in where houses are, that are no longer needed, and where we need lots more houses and apartments at reasonable prices. For example, right now, you can find a 3 bedroom, 2 bath house in Gary, Indiana for sale for under $25,000. I'm not kidding. It's not just Gary, Indiana. Here's another 3 bedroom 2 bath house for sale, for under $25,000, in Mansfield, Ohio. That's the city where my mom grew up, and where I visited a lot as a kid. On the other end of the spectrum, you can find a 3 bedroom, 2 bath house in Cupertino, California, close to Apple Headquarters, for just under $3,000,000. This is the difference between a once thriving Industrial Age city, and a current tech hub, Information Age city in today's world. We have lots of houses in places we don't need them anymore, and not enough affordable houses in places where we do need them.
Part of The Big Transition is the old buildings and infrastructure becoming obsolete for its original purpose, and the transforming or building of all the new types of infrastructure needed, IN THE RIGHT PLACES for the growing and emerging Information Age. This is a time of huge mismatches. We see it in those three homes linked above, and we see it in the job market. It takes decades for a society to sort out these mismatches, and work through all the underlying issues. Part of the problem is that civic leaders, read politicians, don't think long term at all, as a general rule. These underlying issues never even hit their radar. They may try to start jobs programs or get federal funding for a place like Gary, Indiana (or the 150-200 cities with similar issues), and then promote homeless programs in Cupertino (the San Jose, CA region). Politicians allocate money to deal with the symptoms of major problems, but rarely deal with the real, underlying issues. In most cases, they don't really understand the true, underlying issues for long term problems. They are too busy campaigning and fundraising to read a bunch of 400 page books on complex issues. You never hear politicians mention the deep, long term, underlying issues, because it's not good political fodder. Talk about negative issues doesn't get them votes and campaign donations.
As a society, we've dealt with closed down factory buildings for about 45 years now. We've been dealing with dead malls, dead shopping centers, and dead retail stores for about 10-15 years now. You see where this is going? The commercial real estate crisis we are facing right now is just the next step in the overall, nationwide, Spatial Fix. The pandemic accelerated the work-from-home idea, which had been progressing slowly for many years. Now, with a lot more people working from home, another major shift has occurred. Which means we have too many office buildings, and too many industrial buildings, and even too many luxury apartments, in some regions. Like the factory buildings of the 1980's, and dead malls of the 2010's, we need to see how we can adapt as many of these office buildings as possible to different uses going forward.
Office buildings, in general, are hard to turn into apartments, because there are not enough water lines, sewage lines, and other, similar issues. What else can older offices, particularly the smaller and mid sized buildings across the small and medium sized cities of the U.S., be re-used for? If we don't find good answers to this question, then there will be a hundreds more buildings that will become abandoned across the country, in Red States and Blue ones. This will hit cities of all sizes, all backgrounds, and on all levels.
But commercial real estate, the current crisis part of the Spatial Fix, between Industrial Age buildings and Information Age buildings, creates a bunch more issues. This is where the real crisis comes in. First of all, the value of a commercial real estate building depends on how much money the building earns, and less about its physical location, like in residential real estate. When an office building goes from a 5 % vacancy rate to a 20% vacancy rate, the value of the building drops dramatically. Next, office and commercial buildings are usually bought with short term loans, and the owners just pay the interest of the loans, then roll the loan over in 3 or 4 years. They never pay down the principle, like people do with home mortgages, so they have no equity, unless the value of the building goes up. Now, we have buildings with less offices rented out, so the value is going down. The loans are made mostly by the small and mid-sized regional banks. In addition interest rates on loans have risen by about 3% to 4% in the last two years.
So now we have hundreds of office buildings worth less than they were a couple of years ago. Some of these are worth less than the loans now on them. Those 3 and 4 year, interest-only loans are coming due. Since the vacancy rates are up, the owners have less money in general. The banks want more money put up, perhaps millions of dollars, since the buildings are worth less, AND they have to make the new loans at higher interest rates, which means the interest payments on the loans will double or triple in many cases. This means office building owners are going into the bank, which is asking them for more money up front, AND much higher payments on the new loans. The building owners, who are already struggling because the they lave less businesses paying rent in the buildings, often can't afford to run the building with the new higher loan payments.
Now we get to another aspect of modern commercial real estate. Usually each building is set up as its own corporation, and if the building owner stops paying their commercial mortgage payments, all the bank can do is take the building back, they can't go after any of the building owner's other assets to make up the money they lost on the loan. So hundreds of office buildings are now worth much less, maybe 40% to 80% less, since fewer offices are rented out. The current building owners can't come up with more money to create equity in the deal, and they can't run the buildings with the new, higher loan payments. And, in many cases, these building owners, even huge corporations like BlackRock, Brookfield, Vanguard, and similar major commercial real estate businesses, can just hand these big buildings back to the banks. "Here's the keys, we're out! Good luck!" This is already happening, and will happen to hundreds of billions of dollars worth, maybe even trillions of dollars worth, of current commercial real estate over the next few years.
We will soon have banks owning buildings that were worth $10 million in 2021, and may be worth $3 million in 2025. Or buildings that were worth $100 million in 2021, and are worth $25 million in 2024. Banks are in the business of making loans, not running large, complex office buildings, except their own headquarters. So we will get to the point where banks take over these huge buildings, and have to write down losses on those loans, and a many other loans, since most of their other buildings they have loans on will also go down dramatically in value. The banks across the U.S. (and most other major countries), are already struggling. These huge losses will make dozens, probably hundreds, of regional banks insolvent. Even the Big 5 banks will get hit with huge losses, because they have a lot of exposure to huge REIT's (Real Estate Investment Trusts). So a bunch of banks are on the verge becoming insolvent, even if they've been running their banks well, generally speaking. These losses WILL be too much for the system to handle, and we will have another major banking crisis, like we had back in 2008. It's coming. We know it's coming. This has been slowly playing out for over a year already.
Now we get to the point of how this will affect you. If you own several of the types of commercial real estate, there's a good chance it will go down in value, at least for a few years. If you own a business, these bank losses and higher interest rates could lead to higher rent on the building you rent. If you're just an average working person, your bank might become insolvent, and get shut down. Now, you are covered for up to $250,000 by the FDIC. But there's a chance many accounts may be frozen, temporarily, as banks go under, and as each banks issues get worked out. Having your bank account frozen for a week or two would be tough for most people, even if they lose no money. This whole commercial real estate crisis is happening. It's a super low-motion train wreck. And it will stress the already struggling economy, causing a deeper, and most likely, a longer recession. We see this crisis coming, a big White Swan event. It's not going to be easy for anyone.
Now, the final major ripple effect. Cities and towns of all sizes get a big chunk of their revenue from commercial real estate taxes. When buildings go down in value, or sit vacant, they pay less taxes or no taxes at all. So this crisis will lower the money coming into cities, of all sizes, to handle all of their day to day businesses. Yes, cities like New York, Los Angeles, and Chicago will have the biggest losses in value, and will have to furlough or lay off the most workers. But these huge cities have a wide base, and many other sources of tax revenue and stronger political backing. They will struggle, but will, ultimately, be able to survive this crisis better than many of the small and medium size cities and towns across the country.
So far, most of the action to deal with this crisis has been behind the scenes. Banks have been extending loans on buildings, keeping the building owners in business, hoping that the economy would take off, and interest rates would drop back down to near zero, so the buildings would have more space rented out again. That's not going to happen. Not in time to avoid this mess.
Again, this is all part of the Spatial Fix, The Big Transition from the Industrial Age society we're leaving, into the Information Age we're heading into. The late futurist Alvin Toffler dubbed this The Third Wave, and wrote about the various aspects of this issue, from 1980 until 2007. We are moving into another type of society, both technologically and socially, and there's no one group of people that made that happen. This transition began slowly, way back in the 1950's. But now we're in the critical mass part of the transition, where change happens much faster, and on many more levels at once.
There are tough times ahead for almost everyone. That's "baked into the cake" at this point. But, this huge transition period also opens up all kinds of new opportunities, as well. Do you have ideas on how to create more affordable housing in the major metro areas? We need lots of it. Do you have ideas on how to transform old factories, malls, retail stores, or office buildings into new uses for the 21st century? There are huge opportunities for anyone who can figure those issues out. Do you have ideas on how to revive the small and mid sized cities, many of which have been struggling since their factories shut down, 30 or 40 years ago? More opportunity. Do you know how to train out-of-work workers to learn new skills to earn a living in the 2020's? There's a huge number of opportunities there. This whole mess we're heading into is riddled with opportunities to build a better future. That's important to keep in mind.
There you go, this is my best take on the White Swan Event that is the commercial real estate and banking crisis, that we are now facing, as a nation, and as a world. Yes, it seems overwhelming. But it's also the grounds for a lot of future potential to build a better world going forward.
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Time lapse video taken from the top of one of the Hutton Center office buildings in Santa Ana, California. The two towers mirror each other, along the 55 freeway. Video from YouTube.
In late 1993, in 5 Hutton Center, in Santa Ana, in the video above, I told my boss I thought interest rates were about to go higher. He disagreed, bcause he was an experienced mortgage broker. Rates did go up, and he was out of business two or three months later. Nearly 30 years later, that same big office building, and the mirror image one next to it, just got sold by Blackstone, the world's largest, and best connected real estate company... at a 34% discount. When the supposedly smartest real estate investors in the world start defaulting on huge loans, and selling large properties at 30% off, things are about to get crazier for the rest of us before too long. More crazy times are coming in the worlds of money, investing, and real estate.
If you have read this blog much, you know I have this geeky fascination with economics, recessions, and futurist thinking. For some reason, I actually found the semester of economics we took during my senior year in high school to be really interesting. That was way back in 1983-84. There was something about the dynamics of the financial markets that piqued my interest. It wasn't just, "Damn, I could get rich if I figure this stuff out," I just found the dynamics of many interwoven trends really interesting. I started reading the business pages of the Boise paper that sememster, a little bit, and following some of the markets. Nothing serious, just as a casual interest. That spring, my mom won a contest at the company she was telemarketing for, and got a one ounce gold coin, worth about $400, as a prize. I told her, "Don't sell it yet, it's going to go up in price." That was based on what I'd seen happening in a few months. Much to my surprise, she listened, and sold it about a month later for $440, making an extra 10% just for waiting a bit. That was my first call on the future price of an investment.
A couple years later, when I got the job at the FREESTYLIN' magazine in Southern California, I'd make a big plate of pancakes every Saturday morning, and flip on the TV while I chowed down. Then I'd go ride my freestyle bike all day. Many of those mornings I watched the real estate infomercials, with guys like Dave Del Dotto and that little Asian guy with the hot women on the yacht, who seemed really cheesy, even then. Real estate was booming in Southern California, and I got interested in it, and started to read a book now and then on the subject. Later, in 1987 and 1988, two people I worked with each made $100,000 in one year on their houses, which got me more interested. I learned more about real estate, and thought about maybe trying to become an agent. I wasn't to serious, but I took an interest in it. My life revolved around BMX freestyle, but I definitely wanted to make more money than I was at the time, if I could figure out how.
Later on, while visiting my parents, who had moved to North Carolina, during Christmas of 1989, I picked up a book called The Great Depression of 1990, by economist Ravi Batra. He talked about these really long term cycles in economics most people were not aware of. I got even more interested, and actually began to price houses. I could have possibly bought a house out in Lake Elsinore or Perris, California, inland of Orange County. I was making more money then, and actually looked at a few houses. But, like Batra predicted, we headed into a recession in 1990. It wasn't as deep and crazy as he forecast in his book, but the real estate market was dtoast for about six years in Southern California from 1990 to late 1996. That book got me really interested in the dynamics of economic and financial market trends. And yes, I was in my early 20's, and thought, "Hey, if I can figure this stuff out, I could make a ton of money, and then go ride my bike all the time." Instead, I wound up living in a series of low budget BMXer houses and apartments, with lots of roommates, as we slogged through the long recession. During those years, we all learned how to make about 10 different meals from a pack of ramen. Money was tight for most everyone I knew.
I began to watch the financial markets in the newspaper every day for several months, trying to figure out what made the markets move up and down, and to see of there were long term trends in them I could get a grasp. I also started reading business books and the annual Forbes 400 magazine, trying to figure out how the super rich became super rich. I was just scraping by, BMX and skateboarding had "died" in 1989-1990, and I worked a bunch of odd jobs during that time. At one point I was living in the P.O.W. BMX House, with 8-11 other guys, paying about $110 a month in rent, yet watching CNBC business news every morning before the other guys woke up. I also started reading dozens of books a year, on business, real estate, personal development, philosophy, religion, and a few novels as well. I even bought a $300 speed reading course so I could devour more books and get through them faster.
Bit by bit, I learned about aspects of business, market dynamics, relationships between different markets, and began to get some sense of how things were playing out over time. One of the odd jobs I got was in late 1993, telemarketing for a mortgage broker. The job was in a nice office building in Santa Ana, called 5 Hutton Center. There were a few women, and myself, in a really big office in the evenings, callling people to set appointments for mortgage brokers to talk to them about refinancing. Interest rates were low, and a lot of refi's were happening. Most smart homeowners had already refinanced, but we still could get two or three leads a night, usually. It wasn't a great job, but better than most telemarketing jobs at the time.
One night, the owner of the company came in and hung out while we were calling, and we all talked a bit. I asked him if he was worried, since it looked to me like interest rates would be going up soon. The question surprised him, and he told me that interest rates were going to stay low, and the business would be busy for a long time to come. He said he'd been in the mortgage business for over 30 years, and he knew how these things worked. But he appreciated my interest, and said to keep at it, and maybe they could turn me into a mortgage broker sometime.
I had been watching the markets pretty steadily through the four years of recession from 1990 into late 1993. The Federal Reserve, aka The Fed, had lowered interest rates months earlier. To me, it looked like interest rates were being held way too low, and they would have to raise them soon. That's exactly what happened. The Fed raised their Fed Funds rate from about 3% up to 6% in 1994. Two or three months after that conversation with the veteran mortgage broker, he was out of business. That same interest rate rise also sent Orange County, California into bankruptcy, because of some shady stuff one county official had been doing. That was the first time I made a forcast to somebody I didn't really know about where I thought the financial markets were heading, that night, as a telemarketer, in 5 Hutton Center.
It's been about 29 1/2 years since that night as a telemarketer at the mortgage company. I've been learning about business and economic trends, and keeping a casual eye, or more, on the markets the whole time since. I've made several calls on inflaection points, some good, some less so, to people I know, and in this blog over the last six years. I've been writing about a huge recession, or depression, that I believed was coming, since 2019. It looks like we are finally heading into the deepest part of this economic crisis now, though many are still doubting it, as always happens. I was looking at ultra long term cycles, that few people have even heard of, let alone believe in, including two concepts from Ravi Batra's 1989 book. Those cycles led me to think we were in for a depression or great depression, starting around 2020. Technically, we went through a short depression, by definition, in the Spring of 2020. Now comes an even bigger mess, which is happening behind the scenes now, and will become obvious to everyone over the next 4 to 6 months.
Those ultra long term cycles seem to still be playing out, not caring if today's traders believe in them or not. But this time around, we have a whole host of really smart people digging through data on YouTube channels, on Twitter, and looking at many aspects of today's markets and trends. One analyst said recently that this is the most anticipated recession in history. That sure seems to be true. Lately, I've been watching hours and hours of Financial YouTube, diving into all the ideas and information about the crazy economic times coming our way, from several different source. It feels like I'm on the Titanic, and have drone footage of the huge iceberg the ship's about to hit, but no one wants to hear about it. There's so much information about what's happening in the economy right now, but very few people who are interested in it, until the crisis crashes over them, and everyone else. Again, I'm a geek on economics and futurist thinking, and most people are not.
You may have heard about troubles in commercial real estate world recently. Most of you don't geek out on this stuff like I do, and I know this post is really "in the weeds" of the financial world that most people avoid. But a recent event caught my attention, the discount sale of the exact office building I worked in, and made that interest rate prediction in, nearly 30 years ago. Blackstone, the world's biggest asset manager, has defaulted on several commerical properties in the last few months. One of those was a sale of the Griffin Towers, as they are now called, known . Blackstone just sold 5 and 6 Hutton Center at a 36% loss.
The office building I was sitting in way back in 1993, when I told my boss that I thought mortgage rates were about to go up, has just been sold at a 34% deiscount, by the biggest landlord in the world. That's just weird. They own thousands of properties, it's just a weird coincidence, from my perspective, as I was looking into the crsis, still trying to figure out where things are headed in the future.
The world's largest, and presumably one of the smartest, commercial real estate landlords, Blackstone, along with Brookfield, and others, are now struggling with the effects of the huge rise in interest rates, and the work from home movement, which has hit office building owners hard. This is a big issue right now, because a huge chunk of commercial real estate loans are held by regional banks, much like the three that collapsed last month. The work-from-home trend, the steep and quick rise in interest rates, and the after effects of the whole pandemic period, are conspiring to send several parts of the commercial real estate world into huge drops in value. This is putting more stress on many of those smaller, regional banks, already nervous after the Silicon Valley Bank collapse. There's a lot more crazy times ahead, it seems.
From the 1980's into the 2000's, we saw the closing of hundreds, maybe thousands of factories in the U.S.. In the 2010's and into the 2020's, we've seen the closing of over 30,000 retail stores, and a bunch of shopping malls, Now the evil lord Bankruptcy is coming for the office buildings. Will we be able to find new uses for most of these properties? Or will they sit vacant and become new places for UrbEx exploring, like the crumbling factories and malls? Time will tell.
However it plays out, my personal research and view is that we have a lot more of crazy economic turbulence coming, probably several years worth. But with all the negative effects of recessions and depressions, these periods are also when many of the best opportunities come along, and when lots of new businesses, new business models, and entire new industries rise up from the ashes.
Thirty years after that night of telemarketing, I'm a broke and homeless artist and blogger. But I've seen this next recession coming from miles away, and I know there will be all kinds of great opportunities in the next few years. Maybe I, too, can finally rise from the ashes, as well.
