By Sid Chadwick
“…This time will be different….”……Anonymous
As hard as this condition may be to grasp, certain financial conditions look all too similar…. to 2008….!
Conservatively, New York City has over 95 million square feet of empty offices in major office buildings. (We are told that’s the equivalent of over 30 Empire State Buildings.) The statistics for other cities, large and not so large - are similar.
Over the last 3 years, our 10 largest cities lost over 2 million residents (resulting from increased crime and increased taxes to make up for local lost tax revenues and relaxed work-related residency requirements – much in pursuit of an improved quality of life). When tax revenues are lost from one source, municipalities tend to turn to sources…still available.
Given the magnitude of growing office vacancies (…have you seen the layoff announcements over just the last 45-60 days…?) and demographic changes from fewer people required to live near where they work, major debtors who refinanced before and during the Pandemic – are walking away, requiring banks to take possession.
With interest rates being what they are and often excessive costs for reconstructing an office building into apartments and condominiums, it’s understandable that many debtors are …walking away.
In New York City alone, over $1.5 Trillion in loans are due for renewal - in the next two years….!
How many of our readers count on the value of their physical plant for their retirement – and as the financial legacy for their grandchildren? (Remember how owners counted their company’s “value” - in the Presses they (and the bank) owned…?)
The Federal Reserve is on record that it no longer allows (at this time, with more to come) banks to “kick the can down the road” re. refinancing. Empty office buildings (of all designs) will be marked down on banks’ balance sheets. Reports are circulating that previous building prices are being cut -40 % and more, with more discounting coming on the next round.
These conditions appear…. inescapable.
There are several actionable take-away’s here.
First, you may want to prepare yourself for a “reduced value of your company’s assets on your balance sheet – by your bank.” If that occurs, what are your financing restrictions, and options…? Are you using mostly a local or regional bank?
We are told that banks most adversely affected – are the small and regional banks, who have approximately 30% of their balance sheets tied-up in empty office buildings.
Second, if you’ve delayed steps to improve your (a) customer development strategy, (b) revenues, (c) pricing and (d) profitability, time may no longer be on your side.
At our upcoming CEO Peer Group Meeting, I’ve asked one of our Members, an unusually gifted CPA, to lead a discussion to assist our Members to better understand their different fixed costs. His Presentation – will be rare…As a Web Printer, with no experience in Print prior to 13 years ago, he’s increased his company’s revenues over 400%, without any outside Sales Reps. And his historical profitability makes his company - a “profit leader.”
The banks have been quiet so far re. their challenges – that just keep growing. (That quiet period appears to soon be over.)
Do your homework. Be especially careful re. any new debts. 2008 to 2010 – was a horrific period – for too many good companies, and families. Many banks asked their commercial print customers - to find another bank.
Whether they say so or not, your customers are interested in a “flight to quality,” and so should you. Recent whispers of growing Accounts Receivables – may not be a coincidence.
But….you must purposefully act…!
Finally, don’t expect much mercy and leniency from your banker. Fed Chairman Powel was recorded recently to say, “Ultimately, all we have is our Integrity, and we’re not about to lose that.”
“Give me a lever, a fulcrum, and a firm place to stand, and I will move the world.”……………………….…Archimedes
Research Reference: CBS 60 Minutes, The Wall Street Journal