Jim Chanos | Time to Short Commercial Real Estate?

Diary entry #1 - Jim Chanos' interview on Carson Block's new channel Zer0es

(timeskipped to the interesting parts)

Interesting parts:

  1. $6T of subprime + Alt-A credit (troubled sector loans) in the system, representing 30% of GDP today. It was about 15% in both 1980's S&L crisis and 2008's GFC, both real estate bubbles as well.

  2. 14% office vacancy today, vs 19% in S&L crisis.

  3. CARES Act accounting allow banks to temporarily classify "Covid NPLs" as 'deferrals' until year-end. Worst case scenario, they impair 'deferrals' completely and avoid recording Covid NPLs altogether. NPLs today are not what they appear at first glance.

  4. Problem sectors are CRE (office & malls), not so much residential. Lax regulation to help stimulate the sector reminds him of previous RE crises.

  5. Cap rates of REITs are still high despite 30%-50% fall in stock prices. That means lots of room for things to go wrong, e.g. rates increase, spreads widen, or both.

  6. Free rents and build-out allowances are being capitalized, distorting NOI of REITs.

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