SVB Impacts to Real Estate

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SVB Impacts to Real Estate

Sean Kelly-Rand
Member since 2019 · 74 posts · 54 votes

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!

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Michael Wooldridge
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.... 

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  • Michael Wooldridge
    Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    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?

    Well it's a lot of of correlation. but we know regional banks are losing depositors and big banks gaining billions. For example: 

    https://www.bloomberg.com/news...

    Also there have been a number of articles out there about CIti and JPMC changing sign-up process to get people on in days instead of weeks previously. 

    0Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    The decline in First Republic Bank (FRC) stock is a sign of the impact that Real Estate investments have had on Silicon Valley. With the Real Estate market suffering, investors are worried about their money and are making decisions to remove their funds from banks like FRC. This trend risks creating a contagion in the banking sector, and could be devastating for Silicon Valley if it continues unchecked. It's critical that financial institutions work quickly to restore confidence so this crisis of confidence does not spread further.

    [email protected]832-889-5607
    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 votes
    3y

    100% @Carlos Ptriawan - I am really curious where all the office loans are hiding out. Who holds the ultimate risk on soon to be underwater office loans. Is it the national or regional banks or did much of it get sold off into the pension plans/insurance co's as CMBS/loan participations.

    One interesting portion is that many smaller investors focus on residential properties because they are 'bite sized' - office buildings are too large for the average investor to hold - so that is within the REITs/Insurance cos/and Private Equity funds - so it could be a really bad real for the institutions that hold these. 

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Sean Kelly-Rand:

    100% @Carlos Ptriawan - I am really curious where all the office loans are hiding out. Who holds the ultimate risk on soon to be underwater office loans. Is it the national or regional banks or did much of it get sold off into the pension plans/insurance co's as CMBS/loan participations.

    One interesting portion is that many smaller investors focus on residential properties because they are 'bite sized' - office buildings are too large for the average investor to hold - so that is within the REITs/Insurance cos/and Private Equity funds - so it could be a really bad real for the institutions that hold these. 


     I read some big office space in NY went bankrupt and that's owned by the former President and Vanguard's level.

    0Reply
  • Steve TsePro Member
    Member since 2021 · 102 posts · 16 votes
    3y

    Following this discussion makes me wonder what should companies and for that part investors do if they have over $250k in liquid cash ?

    Should the funds be evenly spread among various FDIC insured banks ?

    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 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. 


     Hey Nate - if you are down on the banks you might consider private credit as an investment. We are seeing the volume of new loans and a lot of it is banking clients (banks aren't doing that much lending) and are able to increase our rates and lower our LTVs. DM me if you're interested happy to chat more about it.

    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Sean Kelly-Rand:

    100% @Carlos Ptriawan - I am really curious where all the office loans are hiding out. Who holds the ultimate risk on soon to be underwater office loans. Is it the national or regional banks or did much of it get sold off into the pension plans/insurance co's as CMBS/loan participations.

    One interesting portion is that many smaller investors focus on residential properties because they are 'bite sized' - office buildings are too large for the average investor to hold - so that is within the REITs/Insurance cos/and Private Equity funds - so it could be a really bad real for the institutions that hold these. 


     I read some big office space in NY went bankrupt and that's owned by the former President and Vanguard's level.


     Lot's more of this to come as office leases burn-off and tenants consolidate into smaller spaces. 

    1Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 votes
    3y
    Quote from @Steve Tse:

    Following this discussion makes me wonder what should companies and for that part investors do if they have over $250k in liquid cash ?

    Should the funds be evenly spread among various FDIC insured banks ?

     @Steve Tse - I would consider diversifying regardless, even if the bank is fine you never know what lies ahead. For our fund we are very conscious about how we spread our fund among banks and investments (i.e. capital preservation is paramount!). 

    And personally I have funds across 3-5 banks at anyone time - also helps for the lending relationships and if they know you can move money out easily you'll get better rate on your deposits.

    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 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.


     Hey Dan - I think the cracks were already there SVB just made the wider public more aware of what they were. Now everyone is a banking analyst and starts seeing the cracks in the system (low earning assets versus high cost of capital). 

    I doubt rates would get meaningfully lower in the near future longer-term (2-3 years) maybe.

    In the meantime I'm investing in private credit to be below the waves of the property price volatility. 

    0Reply
  • Dan Portka
    Real Estate Agent · San Pedro, CA · Member since 2019 · 253 posts · 128 votes
    3y
    Quote from @Sean Kelly-Rand:
    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.


     Hey Dan - I think the cracks were already there SVB just made the wider public more aware of what they were. Now everyone is a banking analyst and starts seeing the cracks in the system (low earning assets versus high cost of capital). 

    I doubt rates would get meaningfully lower in the near future longer-term (2-3 years) maybe.

    In the meantime I'm investing in private credit to be below the waves of the property price volatility. 


     The market is projecting rate cuts in the 2nd half of THIS YEAR. CME FedWatch Tool - CME Group

    How much rate cuts for it to be considered "meaningful" is up for debate. My stance is ANY rate cut will drive house demand up as more buyers can start to afford mortgages again. Curious what others here think, but I think if 30 yr rates ease back into the 5%'s we will have already built out a bottom of the housing market. 

    I've sat the last year out because of all the uncertainty, but i'll likely be buying again by the end of the year.

    0Reply
  • Patrick King
    Investor · Simpsonville, SC · Member since 2023 · 14 posts · 10 votes
    3y

    This whole situation will be filled with bad actors who never let a crisis go to waste. This is what worries me most. FUD spreading to disparage competition....not good.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    3y

    Don't everyone rush to get preapproved at once, but SVB is doing mortgages again! :P

    https://www.housingwire.com/ar...

    0Reply
  • Steve TsePro Member
    Member since 2021 · 102 posts · 16 votes
    3y

    @Chris Mason I will do it if SVB gives me 3% on 30 year fixed...

    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 votes
    3y
    Quote from @Steve Tse:

    Following this discussion makes me wonder what should companies and for that part investors do if they have over $250k in liquid cash ?

    Should the funds be evenly spread among various FDIC insured banks ?


     Steve that is one option, even better is to put it into treasuries / securities in your name depends on the cash sums. One wake up call is that you have accounts earning 0% or near it and then to wake up and find out they are not that safe when you can earn 4% in safer investments. I am going to put a bit more in private credit. 

    0Reply
  • Jason Merchey
    Investor · Hendersonville, NC · Member since 2013 · 755 posts · 281 votes
    3y

    It's a pretty interesting situation. On the one hand, the govt. is well-positioned to and has a vested interest in undercutting panic--bank runs are basically just panic on the part of the public. Banks have been paying into a fund to help each other and that is what was tapped to rescue SVB investors and it was good governance I would think. 

    On the other end, it's pretty interesting how banks take risks, but lately because of the gutting of regulation, SVB was well within the flimsy regs that were left until it destroyed itself in days. We need better regulations, and corporate managers need to be held fully accountable. 

    Also interesting is that this is capitalism. Banks are supposed to fail from time to time. Thins out the herd. As well, it's funny how folks at SVB--85% of them--kind of forgot what the FDIC is and what its limits are. They got a bailout for sure. A lot of startup types and big players tend to think they are special enough to receive a bailout. If you don't believe that, I would refer you to 2008.

    1Reply
  • Jason Merchey
    Investor · Hendersonville, NC · Member since 2013 · 755 posts · 281 votes
    3y
    Quote from @Sean Kelly-Rand:
    Quote from @Steve Tse:

    Following this discussion makes me wonder what should companies and for that part investors do if they have over $250k in liquid cash ?

    Should the funds be evenly spread among various FDIC insured banks ?


     Steve that is one option, even better is to put it into treasuries / securities in your name depends on the cash sums. One wake up call is that you have accounts earning 0% or near it and then to wake up and find out they are not that safe when you can earn 4% in safer investments. I am going to put a bit more in private credit. 


    Oh gosh, 5% CDs!? I'm down for that. Heck, my financial plan calls for an average of 7.5% ROI annually, so 5 or 5.5% for veritable safety is an absolute yes in my book.

    0Reply
  • Sean Kelly-Rand
    OP
    Member since 2019 · 74 posts · 54 votes
    3y
    Quote from @Jason Merchey:
    Quote from @Sean Kelly-Rand:
    Quote from @Steve Tse:

    Following this discussion makes me wonder what should companies and for that part investors do if they have over $250k in liquid cash ?

    Should the funds be evenly spread among various FDIC insured banks ?


     Steve that is one option, even better is to put it into treasuries / securities in your name depends on the cash sums. One wake up call is that you have accounts earning 0% or near it and then to wake up and find out they are not that safe when you can earn 4% in safer investments. I am going to put a bit more in private credit. 


    Oh gosh, 5% CDs!? I'm down for that. Heck, my financial plan calls for an average of 7.5% ROI annually, so 5 or 5.5% for veritable safety is an absolute yes in my book.

     @Jason Merchey - I'm not sure we're quite at 5% for CDs but one bank is already paying me 4% on my money market. On our debt fund (real estate loans) we're targeting c. 10% total return and have a 5yr+ track record. Combined it should get you a blended 7.5% ROI. If you are interested message me and I'll share more with you.

    To your point, I was around in 08 and we started this fund back in 2017 seeing the next downturn wasn't too far off in the horizon and we needed a safe place to ride out a storm while still earning a decent return.

    0Reply
  • Steve TsePro Member
    Member since 2021 · 102 posts · 16 votes
    3y

    @Sean Kelly-Rand actually I am using CapitalOne CD @ 5%  

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y

    Hey do you guys read news about large unrealized HTM loss from BAC,etc ? so much so for blaming SVB I guess even BAC is doing worst. 

    0Reply
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