SVB Impacts to Real Estate

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

3y

@Sean Kelly-Rand

This happened on a Friday and it’s a weekend. There has yet to be an impact to real estate and real estate is slow and illiquid.

It took 2 years for Lehman crash to have real estate hit bottom…

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Chris Martin

Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes

3y

In pre-market, First Republic Bank (FRC) is down 62%, off $52 to $30, in an apparent 'run on the bank.' This is becoming a crisis of confidence and has the smell of contagion. Banking in Silicon Valley is under a lot of stress.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Chris Martin:

In pre-market, First Republic Bank (FRC) is down 62%, off $52 to $30, in an apparent 'run on the bank.' This is becoming a crisis of confidence and has the smell of contagion. Banking in Silicon Valley is under a lot of stress.

FRC isn’t a surprise. What is concerning to me is the 18.5% drop on Schwab. That’s actually a sizeable bank and one that is really conservative. Kind of surprised and concerned about wat is going on there.

Sean Kelly-Rand

OP

Member since 2019 · 72 posts · 53 votes

3y

@Chris Seveney - I am more referring to transactions. There the immediate impact to real estate is immense. I am in a chat room with 50 developers and another with 50+ national lenders and it was going haywire over the weekend with the impacts to transactions funding this week. For example: An investor wired over $500k to an escrow account on Friday only to figure out that lawyer used Boston Private (SVB) for all his accounts. Other investors called me as they have significant escrows with First Republic.

And I believe Signature Bank also provided funding to private lenders so if you have a closing this week and your lender uses Signature as a funding source it's unlikely to occur.

It seems depositors at SVB will be fine however there are real issues out there and developers need to be aware and check the risks. For example take an additional moment to check the health ratios of the receiving bank before sending off a wire.

@Scott Trench might want to do an announcement for the group to be a little extra cautious the next few weeks.

Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes

3y

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about committing to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards to profit off it.

And the only reason fed might agree is they don't want the big 3 to get bigger.

4 Reply

Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes

3y

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about comiting to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards,

And the only reason fed might agree is they don't want the big 3 to get bigger.

Thiel should be commended for what he did. Moved his founders and his money. The problem with Silicon Valley is that for every Peter Thiel there are 10 Elizabeth Holmes and Jesse Draper types!

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about comiting to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards,

And the only reason fed might agree is they don't want the big 3 to get bigger.

Thiel should be commended for what he did. Moved his founders and his money. The problem with Silicon Valley is that for every Peter Thiel there are 10 Elizabeth Holmes and Jesse Draper types!

Cool you love Thiel. As I just said he purposely caused the crash and is now trying to profit off it leveraging federal govt stepping in because they don't want the big 3 to get bigger.

Nothing to be commended. The man is a turd trying to firesale the country. Playing with the banking system like this should end up with fines - no different than what musk did around twitter. Except the health of our country and for that matter the globe relies on those credit markets flowing.

It's literally lighting a nuclear version of fishing with dynamite....

5 Reply

Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes

3y

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about comiting to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards,

And the only reason fed might agree is they don't want the big 3 to get bigger.

Thiel should be commended for what he did. Moved his founders and his money. The problem with Silicon Valley is that for every Peter Thiel there are 10 Elizabeth Holmes and Jesse Draper types!

Cool you love Thiel. As I just said he purposely caused the crash and is now trying to profit off it leveraging federal govt stepping in because they don't want the big 3 to get bigger.

Nothing to be commended. The man is a turd trying to firesale the country. Playing with the banking system like this should end up with fines - no different than what musk did around twitter. Except the health of our country and for that matter the globe relies on those credit markets flowing.

It's literally lighting a nuclear version of fishing with dynamite....

I'm shorting banks as we speak.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about comiting to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards,

And the only reason fed might agree is they don't want the big 3 to get bigger.

Thiel should be commended for what he did. Moved his founders and his money. The problem with Silicon Valley is that for every Peter Thiel there are 10 Elizabeth Holmes and Jesse Draper types!

Cool you love Thiel. As I just said he purposely caused the crash and is now trying to profit off it leveraging federal govt stepping in because they don't want the big 3 to get bigger.

Nothing to be commended. The man is a turd trying to firesale the country. Playing with the banking system like this should end up with fines - no different than what musk did around twitter. Except the health of our country and for that matter the globe relies on those credit markets flowing.

It's literally lighting a nuclear version of fishing with dynamite....

I'm shorting banks as we speak.

Hope you shorted Schwab this morning. Nothing wrong with you doing that. You can't singly bring down a bank. Regulations will need to move to stop stuff like this. It's too dangerous to the whole system.

Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes

3y

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

Quote from @Michael Wooldridge:

Quote from @Nate Marshall:

It will be short but brutal for some. Silicon Valley though needs a deep cleansing after Theranos and even WeWork and Uber not withstanding they forced out their CEO/Founders.

Peter Thiel should be commended for getting his founders out. We got to see David Sacks and Jesse Draper grovel for taxpayer money. Remember there is no Theranos with Jesse Draper and her Dad propping up Elizabeth Holmes from the getgo.

Sorry but Peter Thiel cause the crash to happen. And now a bunch of VCs are talking about comiting to buy in if they get certain things. THis isn't Thiel warning about impending crash this is thiel causing the crash and trying to pivot afterwards,

And the only reason fed might agree is they don't want the big 3 to get bigger.

Thiel should be commended for what he did. Moved his founders and his money. The problem with Silicon Valley is that for every Peter Thiel there are 10 Elizabeth Holmes and Jesse Draper types!

Cool you love Thiel. As I just said he purposely caused the crash and is now trying to profit off it leveraging federal govt stepping in because they don't want the big 3 to get bigger.

Nothing to be commended. The man is a turd trying to firesale the country. Playing with the banking system like this should end up with fines - no different than what musk did around twitter. Except the health of our country and for that matter the globe relies on those credit markets flowing.

It's literally lighting a nuclear version of fishing with dynamite....

I'm shorting banks as we speak.

Hope you shorted Schwab this morning. Nothing wrong with you doing that. You can't singly bring down a bank. Regulations will need to move to stop stuff like this. It's too dangerous to the whole system.

He and his founders moved their money. Legend!

U.S. Regional Bank Stocks Now:

1. Western Alliance, $WAL: -75%

2. First Republic, $FRC: -65%

3. Zions Bancorp, $ZION: -43%

4. PacWest, $PACW: -41%

5. Comerica, $CMA: -33%

6. Fifth Third, $FITB: -20%

Markets are betting that SVB's collapse broke the regional bank system.

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

3y

Quote from @Sean Kelly-Rand:

@Chris Seveney - I am more referring to transactions. There the immediate impact to real estate is immense. I am in a chat room with 50 developers and another with 50+ national lenders and it was going haywire over the weekend with the impacts to transactions funding this week. For example: An investor wired over $500k to an escrow account on Friday only to figure out that lawyer used Boston Private (SVB) for all his accounts. Other investors called me as they have significant escrows with First Republic.

And I believe Signature Bank also provided funding to private lenders so if you have a closing this week and your lender uses Signature as a funding source it's unlikely to occur.

It seems depositors at SVB will be fine however there are real issues out there and developers need to be aware and check the risks. For example take an additional moment to check the health ratios of the receiving bank before sending off a wire.

@Scott Trench might want to do an announcement for the group to be a little extra cautious the next few weeks.

We are planning to cover this extensively in the next two weeks. We are not a news team (like CNN), so we will always be a few days behind the market on big things like this, but you will see both the RE podcast and On the Market cover this, as well as blog posts, etc.

A very serious reason to be fearful of banks is a BIG problem for everyone. It is an acute problem for folks like yourself, who manage funds of assets, pooling other people's money. That cash is not insured.

For the vast majority of investors on this platform it is less acute, less direct, of a threat to their businesses. Most "Mom and Pop" RE investors (I consider myself in this group), do not have more than $250K liquid - the rare times where that is the case for me and I have more than that liquid, I typically try to put it to work quickly, so that I'm not just earning the rate offered by my checking/savings account.

The bigger issue is a more insidious one that fears the health of major banks around the country. And, that could become very serious very quickly if investors come to believe, as I do, that treasury yields are going to increase over the remainder of the year. I see a very real path to a 10-year yield north of 5% by EOY. That decreases long-term bond portfolios by ANOTHER 20%, putting pressure on even the very best banks' balance sheets.

3 Reply

Dan Portka

Real Estate Agent · San Pedro, CA · Member since 2019 · 253 posts · 128 votes

3y

@Scott Trench @Sean Kelly-Rand Has the fed just set a precedent with SVB of bailing out all depositors if other banks go under? If so, does 250K FDIC threshold even mean anything? Treasury yields have plummeted today and ever since the SVB news we're seeing cracks now forming the economy. We might not be too far away from even lower interest rates should more signs of a recession/economic problems start to show face. Lower rates mean upward pressure on home prices.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Dan Portka:

@Scott Trench @Sean Kelly-Rand Has the fed just set a precedent with SVB of bailing out all depositors if other banks go under? If so, does 250K FDIC threshold even mean anything? Treasury yields have plummeted today and ever since the SVB news we're seeing cracks now forming the economy. We might not be too far away from even lower interest rates should more signs of a recession/economic problems start to show face. Lower rates mean upward pressure on home prices.

Definitely a precedent. I don't think all banks can expect it to apply to them though. But it will be interesting to watch FRB. The fed didn't want Citi/Wells/BOA/JPMC to grow more. They can't let the too big to fail get bigger on the 08 style acquisitions. But it's hard to imagine they can keep bailing out smaller banks. What would be interesting is if they broker mergers like they did in 08 but among regionals. It actually would help with the too big to fail.

More than anything it seems more like they are trying to short circuit the system failures. Doesn't seem like much planning beyond that

Sean Kelly-Rand

OP

Member since 2019 · 72 posts · 53 votes

3y

@Scott Trench - 100% it takes time and better to do in depth than just surface on the same as CNN. I'm looking forward to the content!

This week it's more the closings than the overall deposits. It's a hastily delivered post however I was handling calls all weekend from fellow investors so figured if I can save just one investor on biggerpockets with a few warnings than it was worthwhile.

For example is a mom and pop investor in Boston goes to buy a triple decker they are likely wiring $500K+ into an escrow account for the closing. Luckily the FDIC/FED stepped in as many escrow accounts are with Boston Private (SVB) and quite a few are with First Republic as well (and its my view that without the backstop that would have fallen today).

One might be surprised what the average real estate investor carries in cash in the Boston market. You can't get a house for less than $1m so amounts are relatively large. I am guessing there are several hundred thousand individuals on BP that have over $250K liquid.

As an aside: We actually keep our cash on hand relatively low, if we carry cash equivalents its in an account holding treasuries etc... to fund transactions we pull from multiple lines of credit secured by the loans we own (that way we don't have to sit on $1m of cash to fund a $1m mortgage).

I am glad to see the FED/FDIC stepped in as it protected a number of people. We aren't out of the woods yet but a step in the right direction.

Love the discussion here.

Eric Bilderback

Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes

3y

I would imagine the good folks of East Palestine, OH could only dream of the red carpet being rolled out for Silicon Valley depositors.

This might be checkmate for Chairman Powell. It will be very interesting to see how he navigates this especially if this metastasizes into a crisis.

3 Reply

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Eric Bilderback:

I would imagine the good folks of East Palestine, OH could only dream of the red carpet being rolled out for Silicon Valley depositors.

This might be checkmate for Chairman Powell. It will be very interesting to see how he navigates this especially if this metastasizes into a crisis.

Or checkmate for the economy.IF Powell doesn’t care. I’m not sure he doesn’t to be honest.

But I agree no idea how he can’t back down. I wish - think it was Goldman - didn’t say over the weekend that he won’t be raising rates now in March. No need to goad him.

Eric Bilderback

Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes

3y

Quote from @Michael Wooldridge:

Quote from @Eric Bilderback:

I would imagine the good folks of East Palestine, OH could only dream of the red carpet being rolled out for Silicon Valley depositors.

This might be checkmate for Chairman Powell. It will be very interesting to see how he navigates this especially if this metastasizes into a crisis.

Or checkmate for the economy.IF Powell doesn’t care. I’m not sure he doesn’t to be honest.

But I agree no idea how he can’t back down. I wish - think it was Goldman - didn’t say over the weekend that he won’t be raising rates now in March. No need to goad him.

I think Powell is a good guy (certainly not my cup of tea) but he is trying to serve his country honorably in an impossible spot, albeit much of it his own making.

We may be at the beginning of what the yield curve has been forecasting events will make interest rates hikes improbable.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Eric Bilderback:

Quote from @Michael Wooldridge:

Quote from @Eric Bilderback:

I would imagine the good folks of East Palestine, OH could only dream of the red carpet being rolled out for Silicon Valley depositors.

This might be checkmate for Chairman Powell. It will be very interesting to see how he navigates this especially if this metastasizes into a crisis.

Or checkmate for the economy.IF Powell doesn’t care. I’m not sure he doesn’t to be honest.

But I agree no idea how he can’t back down. I wish - think it was Goldman - didn’t say over the weekend that he won’t be raising rates now in March. No need to goad him.

I think Powell is a good guy (certainly not my cup of tea) but he is trying to serve his country honorably in an impossible spot, albeit much of it his own making.

We may be at the beginning of what the yield curve has been forecasting events will make interest rates hikes improbable.

No argument on the honorable piece. I do think his ego gets best of him from the whole transitory to the back and forth language the last few months on inflation.

I just hope they hold flat. We will inflate are way out of this. Frankly inflation should get a big relief in May when we hit peak housing/rents.

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Michael Wooldridge:

Quote from @Chris Martin:

In pre-market, First Republic Bank (FRC) is down 62%, off $52 to $30, in an apparent 'run on the bank.' This is becoming a crisis of confidence and has the smell of contagion. Banking in Silicon Valley is under a lot of stress.

FRC isn’t a surprise. What is concerning to me is the 18.5% drop on Schwab. That’s actually a sizeable bank and one that is really conservative. Kind of surprised and concerned about wat is going on there.

they have large unrealized HTM losses

Chris MasonPro Member

Moderator

Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes

3y

The big threat to our society is that the logical small business now pulls all of their cash out of regional banks and credit unions, and parks it all with the Big 4 Banks...

...as if they didn't have enough power/influence already.

Member since 2022 · 485 posts · 216 votes

3y

Quote from @Chris Mason:

The big threat to our society is that the logical small business now pulls all of their cash out of regional banks and credit unions, and parks it all with the Big 4 Banks...

...as if they didn't have enough power/influence already.

Which has been shown to be happening already. To a degree.

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Michael Wooldridge:

Quote from @Chris Mason:

The big threat to our society is that the logical small business now pulls all of their cash out of regional banks and credit unions, and parks it all with the Big 4 Banks...

...as if they didn't have enough power/influence already.

Which has been shown to be happening already. To a degree.

how do we keep track if the depositor is running away from CU/regional bank? is there only a database for that?

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Sean Kelly-Rand:

Hey BiggerPockets Crew! It's been a heluva week in the capital markets! And a crazy Friday for those in real estate on the east and west coast tech heavy markets with the collapse of SVB.

Initial impacts coming out of the FDIC take over are:

- Several closing attorneys used Boston Private / SVB for their escrow accounts so transactions that were closing on Friday/Monday in Boston or San Fran could have issues. I already know that one investor funded to an escrow account on Friday and has no idea where the funds are.

- Many firms used SVB/Boston Private for their business banking - I have already received one notification from a NYC based real estate private equity fund to all of their investors that their firm had significant investor accounts with SVB/Boston Private.

- The follow-on is creating a hectic weekend for financial professionals figuring out exposures (it could be within your investments or clients) or tenants or suppliers/vendors.

- Going forward: If SVB could collapse so suddenly who else could be next? There is talk of First Republic (and have heard from a few people I spoke with that they moved money on Friday) but overall they are seen to be a very well run bank. I predict that we'll know by end of the week.

- Issues plaguing SVB aren't entirely unique: banks have low returns on long-duration assets which have fallen in value while their cost of capital (deposits and short-term borrowings) have increased dramatically.

Advice to investors is to check on accounts and make sure you don't have a number of single bank concentrations and holdings per LLC and per individual are below the FDIC limits. Study the limits today.

It's going to be a crazy week in the capital markets as we all figure out what the FDIC is willing to backstop on SVB and then the follow-on. If the FDIC doesn't guarantee all deposits then there is likely to be some contagion as investors/business yank deposits from the weaker regional banks.

Expect delayed closings - maybe wait a week before funding large escrow amounts.

I was with Lehman real estate in '08 so have been through this before and am watching the situation closely.

Feel free to contact me with any insights. I would love to hear what impacts you've seen and how its affecting your home market. We're all in this together now!

we have not reached the point where massive mega CRE office space going for bankruptcy and may affect the banking industry though, I guess that would be the high risk news in the next six month