Economists and professionals in the restructuring sector of business and real estate have been anticipating a distressed economy for the past 18 months. Thus far they have been wrong.
The public is just plain confused. Many people today dont trust their politicians, their news sources and, surprisingly, not even their health care providers and professionals. This lack of trust, coupled with the pandemic-driven mandated way in which many employees work remotely, has caused many people to reassess their lives and the location from which they are willing to provide their services.
Many employees holding mid-and upper-level jobs will opt to permanently work remotely and never return to the office. This shift in the way people will work in the future will have a profound effect on many aspects of our economy, including the ability of landlords to keep commercial spaces leased.
COVID-19, the Delta, Omicron variants and now the highly contagious BA.2 variant have caused millions of workers to be unavailable for work, either remotely or otherwise. This has created a serious supply and distribution chain disruption. This problem is caused in part by manufacturers not being able to supply component products due to worker disruptions in factories. Add to this supply shortage the fact that personnel disruption in the transportation and delivery of products caused by COVID (i.e., the shortage of truck drivers) and we can clearly see the full picture of the disruption in the supply chain.
The threat of a substantial new round of tariffs, embargoes and other economic sanctions based on the political climate creates further risks of the U.S. becoming a distressed economy. In addition, there is a looming threat of high inflation. On the positive side, until recently the stock market and overall economy were generally clicking along at a solid and positive pace. The stock market doesnt always accurately represent what is really going on in the economy, but recent market volatility may be a harbinger of troubled times ahead.
Will the accumulation of these factors ultimately cause the predicted distressed economy? No one knows for sure, but in analyzing the situation it may be instructive to look at the issues that have prevented the anticipated downturn.
Since the pandemic began, regulators have not been pressuring banks to take action with respect to defaulted loans. Historically, banks have been willing to kick the can down the road with respect to defaulted loans if they could do so without significantly impairing the accounting value of the loans with respect to the banks capital requirements. Regulators current attitudes have allowed the banks to do just this.
While the regulators laissez-faire attitude has had a definite positive short-term effect on the economy, at some point the regulators know that the effect of their actions will cause banks to have misleading financial statements.
It is not likely that regulators behaviors will change before the midterm elections later this year. At some point, however, they will have to stop allowing banks to avoid classifying loans. Otherwise, they risk allowing the banking system to continue to mispresent the value of its loan assets, with all the risks of that situation impacting the creditability and stability of the banking system.
It is my view that when the bank regulators change their position with respect to their treatment of defaulted loans, an anticipated tsunami of real estate foreclosures and bankruptcies will be upon us.
Interest rates have historically had a substantial impact on the economy, especially the real estate sector.
The Feds have kept interest rates at almost zero to support the economy. Now, however, the specter of high inflation will almost certainly bring an end to near-zero interest rates. Annual inflation during 2022 is projected to be close to 7%. The Fed has already announced its intention to fight inflation by raising interest rates as early as in March. The issue is not whether interest rates will rise. Rather, it is by how much and when.
Rising interest rates hurt individuals in many ways:
The re-emergence of COVID in the form of the current variants has all but destroyed the timetable for societys return to normalcy. There is no reliable way to predict the effect of this re-emergence on the psyche of the country. It is predictable, however, that this re-emergence will negatively impact the economy, and will further delay a return to normalcy.
In fact, it is likely that normalcy, as it existed pre-pandemic, will never fully return. Trends like the shift of consumers primarily conducting their shopping online will have a negative effect on brick-and-mortar retail sales. The need for retail space seems poised to continue to decline even more than it has already. This problem has been accelerated by the pandemic.
Owners of shopping centers and commercial buildings are girding for the rash of vacancies that are most assuredly on the horizon. Individuals would be well advised to assume inflation and higher interest rates are on the near horizon and should act in any way possible to mitigate the harm to them from the looming dual threat. It is uncertain how federal, state, and local governments will react to the situation.
Uncertainty is the enemy of business, and it is clear we are facing uncertain, unpredictable times. The publics general perception of all of this is yet to be seen. There is much distrust by the people of our nation. These factors will combine to create a perfect storm for companies and real estate investors to experience increasingly distressed financial times.
The best advice we can offer is for entities to deal with their distressed assets early on.
The general public will be looking at inflation and rising interest rates and will react accordingly. The earlier people and businesses accept and respond to these changes, and react appropriately, the more likely it is that Chapter 11 bankruptcies can be avoided. This not only increases the chances that companies can resolve their financial issues without resorting to bankruptcy, it often reduces the need for employee layoffs.
Founder and President, Distressed Capital Resources LLP
William N. Lobel is the Founder and President of Distressed Capital Resources LLC, a company that has brought together virtually every resource available to assist borrowers with financially distressed real estate or businesses, with the goal of maximizing a borrower's leverage and options in order to successfully resolve that borrower's financial issues.
Read the original post:
A Wave of Bankruptcies and Foreclosures Appears to be Building - Kiplinger's Personal Finance
- Boy Scouts' bankruptcy judge approves nearly $250 million in fees - Reuters - October 22nd, 2023 [October 22nd, 2023]
- What CARD's Clean Slate Post-Bankruptcy Could Mean For Autism ... - Behavioral Health Business - October 22nd, 2023 [October 22nd, 2023]
- 8 Senators Ask U.S. Treasury to Consider 'Going Concern' Bid to ... - International Brotherhood of Teamsters - October 22nd, 2023 [October 22nd, 2023]
- A Burger King franchisee gets sold out of bankruptcy, and a big buyer is Burger King - Restaurant Business Online - September 28th, 2023 [September 28th, 2023]
- Furniture-maker Noble House falls into bankruptcy, owes overseas ... - Retail Dive - September 28th, 2023 [September 28th, 2023]
- How to Get Your Own "Free" Private Investigator in Bankruptcy - Ward and Smith, PA - September 28th, 2023 [September 28th, 2023]
- Large Corporate Bankruptcy Filings Surged in First Half of 2023 ... - ABL Advisor - September 28th, 2023 [September 28th, 2023]
- MV Realty Files For Chapter 11 Bankruptcy - The Real Deal - September 28th, 2023 [September 28th, 2023]
- Vesttoo case: Time to "stop litigating and start cooperating" says ... - Artemis.bm - September 28th, 2023 [September 28th, 2023]
- BlockFi Bankruptcy Plan Receives Approval - Watcher Guru - September 28th, 2023 [September 28th, 2023]
- From Bank To Bankruptcy: How This Crypto Scam Toppled A US ... - Bitcoinist - September 28th, 2023 [September 28th, 2023]
- Mainstream Media Objects to Further Customer Data Redactions in ... - Cryptonews - September 28th, 2023 [September 28th, 2023]
- CARD's Founding CEO Returns to the Helm: What's Next for the ... - Behavioral Health Business - September 28th, 2023 [September 28th, 2023]
- "Calvin Klein was once on the verge of bankruptcy": BTS' Jungkook's ... - Sportskeeda - September 28th, 2023 [September 28th, 2023]
- Lerner Family Fight: Father's Actions led to Bankruptcy, son Says - The Real Deal - September 28th, 2023 [September 28th, 2023]
- Mercy Foundation asks court to clarify its role in bankruptcy - The Gazette - September 28th, 2023 [September 28th, 2023]
- Celsius bankruptcy auction nears end, with Fahrenheit in the lead - Reuters - May 18th, 2023 [May 18th, 2023]
- Surge in corporate bankruptcies just the start for debt-loaded firms - Business Insider - May 18th, 2023 [May 18th, 2023]
- 7 Companies Declare Bankruptcy Over Weekend in 15-Year Record - PYMNTS.com - May 18th, 2023 [May 18th, 2023]
- Credit Crunch Fuels 48-Hour Bankruptcy Rush With Seven Filings - Yahoo Finance - May 18th, 2023 [May 18th, 2023]
- Private equity-backed Envision Healthcare files for bankruptcy - Financial Times - May 18th, 2023 [May 18th, 2023]
- Drobo, having stopped sales and support, reportedly files Chapter 7 bankruptcy - Ars Technica - May 18th, 2023 [May 18th, 2023]
- Roxby Bankruptcy Cases Dismissed, Foreclosure Action Expected ... - Wheeling Intelligencer - May 18th, 2023 [May 18th, 2023]
- Voyager bankruptcy plan approved, customers may recover 35.7% of claims initially - Cointelegraph - May 18th, 2023 [May 18th, 2023]
- Bed Bath and Beyond's bankruptcy could help TJ Maxx owner TJX - Yahoo Finance - May 18th, 2023 [May 18th, 2023]
- IronNet: Near-Term Bankruptcy Filing Might Be In The Cards - Sell ... - Seeking Alpha - May 18th, 2023 [May 18th, 2023]
- Filing For Bankruptcy Protection Due To PFAS Litigation Costs - The National Law Review - May 18th, 2023 [May 18th, 2023]
- Full list of retailers that have filed for bankruptcy as shoppers go online to find deals... - The US Sun - May 18th, 2023 [May 18th, 2023]
- Quadriga CX Bankruptcy Claimants to Get 13% on the Dollar - CoinDesk - May 18th, 2023 [May 18th, 2023]
- Sorrento Therapeutics, Inc.'s Bankruptcy Court Orders Brokerage Firms to Credit Dividended Scilex Stock to Customers' Accounts and Sorrento Advises... - May 18th, 2023 [May 18th, 2023]
- Failing ventures and Twitter hiatus spark Tai Lopez bankruptcy ... - Protos - May 18th, 2023 [May 18th, 2023]
- Facing bankruptcy, Highland Park settles lawsuit over seized ... - WXYZ 7 Action News Detroit - May 18th, 2023 [May 18th, 2023]
- Judge in archdiocese bankruptcy case recuses himself over donations scandal - The Guardian US - April 30th, 2023 [April 30th, 2023]
- Revlon Taps New Directors as Lenders Take Control in Bankruptcy - The Wall Street Journal - April 30th, 2023 [April 30th, 2023]
- Opinion: Highland Park shouldn't declare bankruptcy over water debt - Detroit Free Press - April 30th, 2023 [April 30th, 2023]
- In Kolkata, India's new bankruptcy law is put to the test - Financial Times - April 30th, 2023 [April 30th, 2023]
- Judge in Catholic bankruptcy recuses over church donations - The Associated Press - April 30th, 2023 [April 30th, 2023]
- Judge in New Orleans Roman Catholic bankruptcy recuses himself over church donations - PBS NewsHour - April 30th, 2023 [April 30th, 2023]
- Four companies indirectly owned by Berkshire Hathaway file for bankruptcy (NYSE:BRK.B) - Seeking Alpha - April 30th, 2023 [April 30th, 2023]
- Pfizer Buys Lucira Health for $36.4M Through Bankruptcy Auction - GenomeWeb - April 30th, 2023 [April 30th, 2023]
- Bed Bath & Beyond shares drop after it files for bankruptcy protection - Detroit Free Press - April 30th, 2023 [April 30th, 2023]
- Bankruptcy Battle Breaks Out Over Greenwich Village Dev Site - The Real Deal - April 30th, 2023 [April 30th, 2023]
- US companies in distress turn to debt exchanges to dodge bankruptcy - Financial Times - April 30th, 2023 [April 30th, 2023]
- National retailer sold out of bankruptcy, will close remaining South ... - columbiabusinessreport.com - April 30th, 2023 [April 30th, 2023]
- Companies facing bankruptcy do this: Internet irate after Elon Musk led-Twitter reportedly slashed parental leaves - Business Today - April 30th, 2023 [April 30th, 2023]
- Tim Ziss Files For Bankruptcy To Extend Contract For Midtown Office - The Real Deal - April 30th, 2023 [April 30th, 2023]
- Future at Conway plant unclear after bankruptcy - Arkansas Online - April 30th, 2023 [April 30th, 2023]
- J&J Uses Cajoling, $9 Billion Offer to Sell New Talc Bankruptcy - Bloomberg Law - April 30th, 2023 [April 30th, 2023]
- Donald Trump and 5 Other Famous People Who Filed for Bankruptcy and What Happened Next - Yahoo Finance - April 30th, 2023 [April 30th, 2023]
- Beloved retailer and Michaels rival to close nine more stores amid bankruptcy fears see the full list of... - The US Sun - April 30th, 2023 [April 30th, 2023]
- Process - Bankruptcy Basics | United States Courts - March 31st, 2023 [March 31st, 2023]
- 10 years after bankruptcy scare, village is paying $2.5M in cash for new Village Hall - MLive.com - March 31st, 2023 [March 31st, 2023]
- Bankruptcy: What You Need to Know - NerdWallet - February 7th, 2023 [February 7th, 2023]
- DCG Creditor Pact Revealed With Plan to Sell Genesis Trading Unit as Part of Bankruptcy - CoinDesk - February 7th, 2023 [February 7th, 2023]
- Staring Down Bankruptcy, Bed Bath & Beyond Says It Will Sell Stock - The New York Times - February 7th, 2023 [February 7th, 2023]
- Pet store with several Mass. locations files for bankruptcy, will cease operations at end of month - Boston 25 News - February 7th, 2023 [February 7th, 2023]
- What Is Bankruptcy? Forbes Advisor - January 19th, 2023 [January 19th, 2023]
- Filing for Bankruptcy: What to Know | Consumer Advice - January 19th, 2023 [January 19th, 2023]
- Bankruptcy | California Courts | Self Help Guide - January 19th, 2023 [January 19th, 2023]
- Bed Bath & Beyond could file for bankruptcy 'as early as this weekend': Macco CEO - Yahoo Finance - January 6th, 2023 [January 6th, 2023]
- Bankruptcy Basics Glossary | United States Courts - October 23rd, 2022 [October 23rd, 2022]
- Cash crunch caused Thrifty Propane to file for bankruptcy: statement - WJW FOX 8 News Cleveland - October 19th, 2022 [October 19th, 2022]
- Chinese Steel Manufacturers On The Brink Of Bankruptcy - OilPrice.com - October 19th, 2022 [October 19th, 2022]
- Pennsylvania Bankruptcy Court Finds That Consent and Release Do Not Protect Against Wrongful Foreclosure Claim - JD Supra - October 19th, 2022 [October 19th, 2022]
- Congressional Candidate Critical of Loan Forgiveness Sought to Have Student Debt Cleared Via Bankruptcy - NBC4 Washington - October 19th, 2022 [October 19th, 2022]
- Bloomberg Tax Introduces New Portfolio Addressing Employee Benefits and Bankruptcy - PR Newswire - October 19th, 2022 [October 19th, 2022]
- Alex Jones claims bankruptcy: How will Sandy Hook families get paid? - Grid - October 19th, 2022 [October 19th, 2022]
- Bankruptcy - Michigan - October 17th, 2022 [October 17th, 2022]
- PFC to take RattanIndia plant to bankruptcy court this year | Mint - Mint - October 17th, 2022 [October 17th, 2022]
- Significant Fee increases for Bankruptcy and Winding-Up Petitions on the way - Lexology - October 17th, 2022 [October 17th, 2022]
- US Bankruptcy Court NJ - Live Database - October 15th, 2022 [October 15th, 2022]
- It Is Time To Change Bankruptcy Forum Laws - Patent - United States - Mondaq - October 13th, 2022 [October 13th, 2022]
- Judge in Archdiocese of Santa Fe bankruptcy sets proposed timeline to pay abuse victims - Yahoo News - October 13th, 2022 [October 13th, 2022]
- CMS Protests QHC Bankruptcy Plan Will Not Cover $1M Owed to Agency - Skilled Nursing News - October 13th, 2022 [October 13th, 2022]
- As Jury Deliberates In CT, Alex Jones And His Lawyers Are Setting Fire To Each Other In TX Bankruptcy Court - Above the Law - October 13th, 2022 [October 13th, 2022]
- Student loans are notoriously difficult to discharge in bankruptcy. A new bill could change that - Fortune - October 13th, 2022 [October 13th, 2022]
- Pioneering computer science alumnus battles bankruptcy and more on road to graduation - Oklahoma State University - October 13th, 2022 [October 13th, 2022]
- J&J Talc Bankruptcy 'Bad Faith' Claims Go Before Third Circuit - Bloomberg Law - September 20th, 2022 [September 20th, 2022]
- New amendments to bankruptcy code can maximise recovery of stressed assets - DNA India - September 20th, 2022 [September 20th, 2022]
- Judge reports threats, harassment over J&J talc bankruptcy - Reuters - September 17th, 2022 [September 17th, 2022]