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close video Commercial real estate market will worsen if economy slows: Jeff Greene

Real estate entrepreneur Jeff Greene addresses fears of commercial real estate collapse on ‘The Claman Countdown.’

The threat of a commercial real estate market crash is hanging over the already fragile U.S. economy. 

About $1.5 trillion in commercial mortgage debt is due by the end of 2025, but steeper borrowing costs, coupled with tighter credit conditions and a decline in property values brought on by remote work, have increased the risk of default. 

Fitch Ratings already estimated that 35% — or $5.8 billion — of pooled securities commercial mortgages coming due between April and December 2023 will not be able to be refinanced. 

"Commercial real estate is melting down fast," Tesla CEO Elon Musk said in a recent tweet. "Home values next."

WORLD BANK WARNS GLOBAL ECONOMY TO SLOW SHARPLY AMID HIGHER INTEREST RATES

The Amazon HQ2 Met Park campus in Arlington, Va., April 3, 2023. (Nathan Howard/Bloomberg via Getty Images / Getty Images)

Office and retail property valuations could ultimately plummet as much as 40% from peak to trough this year as higher interest rates make it harder for investors to refinance trillions in looming debt, according to Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management.

"MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis," Shalett wrote in a weekly investment note. "More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points."

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Complicating the matter is the fact that small and regional banks are the biggest source of credit to the $20 trillion commercial real estate market, holding about 80% of the sector's outstanding debt. Regional banks were just at the epicenter of the upheaval within the financial sector, and there are concerns that the turmoil could make lending standards drastically more restrictive.

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference after a Federal Open Market Committee meeting in Washington, D.C., March 22, 2023. (Al Drago/Bloomberg via Getty Images / Getty Images)

During a credit crunch, banks significantly raise their lending standards, making it difficult for businesses or households to get loans. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end.

Banks were already tightening lending standards before the crisis within the industry began. A quarterly survey of loan officers published by the Fed showed that a growing number of banks tightened lending standards and saw a sharp slowdown in demand during the final three months of 2022.

BANKING CRISIS THREATENS TO IGNITE CREDIT CRUNCH OF US HOUSEHOLDS: WHAT TO KNOW

"Refinancing risks are front and center" for commercial property owners, a separate Morgan Stanley note said. "The maturity wall here is front-loaded. So are the associated risks."

Even before the collapse of Silicon Valley Bank and Signature Bank in early March, the commercial real estate market was struggling with a number of challenges, including higher interest rates and waning demand for office space as more companies allow employees to work from home.

Pedestrians walk by a First Republic Bank April 26, 2023, in San Francisco. (Justin Sullivan/Getty Images / Getty Images)

"Commercial real estate, already facing headwinds from a shift to hybrid/remote work, has to refinance more than half of its mortgage debt in the next two years," Shalett wrote in a weekly report published last month.

The Federal Reserve has raised interest rates 10 times over the past year from near zero to around 5%. Policymakers have indicated that another rate hike could be on the table this year amid signs of underlying inflationary pressures.

Still, others are less pessimistic about the future of the commercial real estate market. Solita Marcelli, UBS Global Wealth Management chief investment officer of Americas, said the headlines regarding office space "are worse than reality."

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"An expected credit crunch on the back of rising cost of funding for banks may further compound its troubles," Marcelli said in a note. "We don’t believe a repeat of the 2008 liquidity crisis is likely — where capital markets essentially closed for financing.

"In our view, the health of the overall banking system and market liquidity conditions are substantially better than they were during the [Great Financial Crisis]."

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Technology

Amazon CEO Jassy says AI will lead to ‘fewer people doing some of the jobs’ that get automated

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Amazon CEO Jassy says AI will lead to 'fewer people doing some of the jobs' that get automated

AI will change the workforce, says Amazon CEO Andy Jassy

Amazon CEO Andy Jassy said the rapid rollout of generative artificial intelligence means the company will one day require fewer employees to do some of the work that computers can handle.

“Like with every technical transformation, there will be fewer people doing some of the jobs that the technology actually starts to automate,” Jassy told CNBC’s Jim Cramer in an interview on Monday. “But there’s going to be other jobs.”

Even as AI eliminates the need for some roles, Amazon will continue to hire more employees in AI, robotics and elsewhere, Jassy said.

Earlier this month, Jassy admitted that he expects the company’s workforce to decline in the next few years as Amazon embraces generative AI and AI-powered software agents. He told staffers in a memo that it will be “hard to know exactly where this nets out over time” but that the corporate workforce will shrink as Amazon wrings more efficiencies out of the technology.

It’s a message that’s making its way across the tech sector. Salesforce CEO Marc Benioff last week claimed AI is doing 30% to 50% of the work at his software vendor. Other companies such as Shopify and Microsoft have urged employees to adopt the technology in their daily work. The CEO of Klarna said in May that the online lender has managed to shrink its headcount by about 40%, in part due to investments in AI and natural attrition in its workforce.

Jassy said on Monday that AI will free employees from “rote work” and “make all our jobs more interesting,” while enabling staffers to invent better services more quickly than before.

Amazon and other tech companies have also been shrinking their workforces through rolling layoffs over the past several years. Amazon has cut more than 27,000 jobs since the start of 2022, and it’s announced smaller, more targeted layoffs in its retail and devices units in recent months.

Amazon shares are flat so far this year, underperforming the Nasdaq, which has gained 5.5%. The stock is about 10% below its record reached in February, while fellow megacaps Meta, Microsoft and Nvidia are all trading at or very near record highs.

WATCH: Jassy says robots that will eventually do delivery and transportation

Over time we will have robots that will do delivery and transportation, says Amazon CEO Andy Jassy

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Politics

PM faces threat of major rebellion during key vote today

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PM faces threat of major rebellion during key vote today

Sir Keir Starmer continues to face the threat of a major rebellion during a key vote on welfare reforms later – despite making last-minute concessions to disgruntled Labour MPs.

Work and Pensions Secretary Liz Kendall has confirmed that all existing claimants of the personal independence payment (PIP), the main disability benefit, will be protected from changes to eligibility.

The combined value of the standard Universal Credit allowance and the health top-up will rise “at least in line with inflation” every year of this parliament.

And an additional £300m for employment support for sick and disabled people in 2026 has been announced, which will rise every year after.

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Welfare cuts ‘needed to be made’

Ms Kendall has also promised that a consultation into PIP – “co-produced” with disabled people – will be published next autumn.

She said the U-turn on welfare cuts will cost taxpayers about £2.5bn by 2030 – less than half the £4.8bn the government had expected to save with its initial proposals.

Modelling by Ms Kendall’s own department, released yesterday, suggested the proposals would push 150,000 more people into poverty by 2030, down from the 250,000 estimated under the original plan.

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But after announcing the U-turns, Labour MPs were still publicly saying they could not back the plans as they do not go far enough to allay their concerns.

Disabilities minister Stephen Timms would not say he was “confident” the proposals would pass the Commons when asked on Sky News’ Politics Hub with Sophy Ridge.

“We’ve got a very strong package, I certainly hope it passes,” he replied.

Read more: What are the concessions to the welfare reform bill?

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‘Disabled people thrown under the bus’

A total of 86 charities united yesterday to call on MPs to reject the reforms, saying they will harm disabled people and calling it “a political choice”.

The likes of Oxfam, Child Action Poverty Group, Mind and Shelter said the bill has been brought to a vote without consulting disabled people and without any assessment “of its impact on health and employment outcomes”.

When asked to name “a single” disability organisation in favour of the reforms, Ms Kendall declined to do so.

Several Labour MPs indicated they would still vote against the changes, leaving the government in the dark over how big a rebellion it still may face.

Ms Kendall tried to allay their fears, telling MPs: “I believe we have a fair package, a package that protects existing claimants because they’ve come to rely on that support.”

Richard Burgon presented a petition to parliament yesterday evening against the cuts, signed by more than 77,000 people.

Several Labour MPs questioned why the vote was going ahead before the review into PIP is published – including Rachael Maskell, who said she could not “countenance sick and disabled people being denied support” and added: “It is a matter of conscience.”

Connor Naismith said the concessions “undoubtedly improve efforts to secure welfare reform which is fair”, but added: “Unfortunately, I do not believe these concessions yet go far enough.”

Nadia Whittome
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Labour rebel Nadia Whittome said the government was ‘ignoring’ disabled people

Nadia Whittome accused the government of “ignoring” disabled people and urged ministers to go “back to the drawing board”.

Ian Byrne told the Commons he will vote against the “cruel cuts” to disability benefits because the “so-called concessions go nowhere near far enough”.

The vote will take place this evening, with coverage on Sky News’ Politics Hub live blog and on TV.

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World

Benjamin Netanyahu to meet Donald Trump next week amid calls for Gaza ceasefire

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Benjamin Netanyahu to meet Donald Trump next week amid calls for Gaza ceasefire

Israeli Prime Minister Benjamin Netanyahu will be meeting Donald Trump next Monday, according to US officials.

The visit on 7 July comes after Mr Trump suggested it was possible a ceasefire in Gaza could be reached within a week.

On Sunday, he wrote on social media: “MAKE THE DEAL IN GAZA. GET THE HOSTAGES BACK!!!”

At least 60 people killed across Gaza on Monday, in what turned out to be some of the heaviest attacks in weeks.

Israeli Prime Minister Benjamin Netanyahu, left, with US President Donald Trump. Pic: Reuters
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Benjamin Netanyahu, left, with Donald Trump during a previous meeting. Pic: Reuters

According to the Hamas-run health ministry, 56,500 people have been killed in the 20-month war.

The visit by Mr Netanyahu to Washington has not been formally announced and the officials who said it would be going ahead spoke on condition of anonymity.

An Israeli official in Washington also confirmed the meeting next Monday.

More on Benjamin Netanyahu

White House Press Secretary Karoline Leavitt said the administration was in constant communication with the Israeli government.

She said Mr Trump viewed ending the war in Gaza and returning remaining hostages held by Hamas as a top priority.

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The war in Gaza broke out in retaliation for Hamas’ 7 October 2023 attacks on southern Israel that killed 1,200 people and saw a further 250 taken hostage.

An eight-week ceasefire was reached in the final days of Joe Biden’s US presidency, but Israel resumed the war in March after trying to get Hamas to accept new terms on next steps.

Talks between Israel and Hamas have stalled over whether the war should end as part of any ceasefire.

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