The number of foreclosures in the Mezzanine Financing Marketplace have already doubled the number that were seen in the entirety of last year. Many think that by the end of this year, the total may be the highest ever recorded.
Market watchers consider this to be a harbinger for the commercial real estate market as a whole.
Mezzanine Financing is a hybrid vehicle that carries with it higher interest rates and an easier way for debt holders to force a debtor into foreclosure. One of the reasons it’s easier is because the instruments aren’t technically mortgages.
This financing allows the mortgagor to convert the financing into equity in the case of a default. This type of debt includes warrants embedded into the instrument that increase the value on the subordinated debt and allows the mortgage holder greater flexibility in dealing with bond holders.
As commercial real estate prices decline this year, many of these deals have gone into default. Given the number of years it normally takes for traditional mortgages to enter foreclosure, Mezzanine Financing difficulties normally foretell what the overall market will do.
If you’re a longer-term reader of this column, you’ll know that I’ve been reporting on the current commercial real estate difficulties and the adjacent lending problems that have followed for quite some time. As soon as the majority of the general public stopped walking into stores to make their purchases, the so-called “Amazon Effect” was inevitable.
Add to that the higher interest rates and current appetite for remote work, and what do you have? In many ways, it’s the perfect storm.
Commercial real estate prices had to come down. Be patient. If you play it correctly there will be buckets of money to be made.
For many, this will be a crisis. But for the enlightened…an opportunity.
Let me leave you with this.
The National Retail Federation has estimated that somewhere between 345K to 445K seasonal workers will be hired for the holidays. This estimate puts holiday hiring down 40% from last year. The number of publicly advertised seasonal positions is at the lowest number recorded in the last decade, according to Challenger, Gray & Christmas, an outplacement services firm.
Retailers don’t seem to be forecasting a Very Merry Christmas.
A common conversation I’m having with retailers is about inventory levels and how much to buy. Too many purchases or too little will ruin the profitability of any holiday marketplace.
This caution is now affecting the wholesalers as well. Many have promised retailers something akin to just-in-time inventory placements. In other words, “Call me today and I’ll have it to you tomorrow.”
Only whatever God you pray to knows how this will play out. Time will tell.
But we seem to be in a no man’s land, a purgatory if you will, teetering on a precipice. Most entrepreneurs aren’t terribly patient people, but now isn’t the time to be hasty.
Until we actually know what this economy will do, caution and patience is the order of the day.
We’re all going to get through this. Let’s get through it together.
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