Good afternoon, everybody. This is the August Eye on the Market. And this one's Eye on the Market is There's No Place Like Home. That has two meanings as it relates to what we're talking about in the Eye on the Market this time. One of them obviously has to do with the repatriation of Japanese yen funding and unwinds by Japanese investors and global hedge funds.
And then the second one has to do with work from home trends and the impact on distressed office real estate investing. So those are two different topics, both of which are linked by something having to do with home. So let's talk about the yen unwind first. The yen carry trade is the biggest carry trade I've seen in over 30 years. It seems like free money until it isn't.
The first chart here looks at how over the last few years, if you had been funding in yen in short-term fixed income, or even as a Japanese household avoiding investing in yen and investing overseas instead, you made a lot of money. But then with a yen framework, an appreciation in the yen would really mess all that up.
There were some interesting research out of Deutsche Bank late last year where they did all the math and they combined Japanese pension plans, state-owned banks, the Bank of Japan and the households, and computed that they had one giant $20 trillion carry trade going, where they fund in short-term bank deposits and then invest either in long-duration yen assets domestically or in all sorts of overseas foreign assets. So that carry trade is getting jolted as some of those entities sell overseas positions and repatriate their yen back home or by global macro hedge funds that are forced to unwind because of some of the stop losses that they're experiencing.
And the first chart here shows examples of Mexican fixed income or the S&P 500, or anything that you could have bought by funding a Japanese yen, and how much money you would have made and recently lost. So to just roll back the clock a little bit, the Fed, when it started to tighten in 2022, it really emboldened the shorts on the yen. And that's when the yen went to its highest level since 1985 or 1986 when it hit 160.
The yen was so weak that the Bank of Japan actually intervened with about $30 or $40 billion of intervention just last month to prevent it from depreciating further. And I think they mis-sized it, and now you've got this massive surge in the yen.
The other thing that's happening is after many years of essentially zero policy rates in Japan, core CPI and the spring wage negotiations, which are kind of a thing that you follow in Japan as it relates to wage increases, are running anywhere from 3% to 5%. So I understand the pressure on the Bank of Japan to raise policy rates when wage inflation and core inflation are several hundred basis points higher than the policy rate.
And the amazing thing is it took one single tiny little 25-basis-point hike to set this whole thing in motion. And that's the hard thing about these global carry trades and the various derivative markets that enable them. It's very hard to at any given point in time just how much money is in them.
Now, for what it's worth, we've now had between the BOJ hike and the July intervention from the Bank of Japan has driven the yen—it's probably the third or fourth biggest yen rally since the early '70s. Our FX strategists think at about 140 to 145, the yen is much closer to fair value than where it was three weeks ago.
But those are for some very abstract calculations based on regressions and interest rate differentials, and things like that. And most of the time when you have some kind of correction like this, things tend to overshoot. That said, it does feel like we're much closer to a fair value on the yen, which should slow down some of the risk unwinding that's been taking place.
The global equity markets have all been stung. Most of the equity markets are still up on a year-to-date basis if you look regionally, whether it's the U.S. or Europe or Asia more broadly. A couple of the markets are down for the year, but the markets weren't really set up well for this.
Some of these things you'll have seen from us before. But there was so much enthusiasm on the artificial intelligence language model, NVIDIA craze, that by the end of July, short interest on the S&P and the NASDAQ essentially had all but disappeared. Anybody that over the last few years that had been betting against the market gave up. And there's a chart in the here that is just amazing to see as the shorts on the NASDAQ and the S&P just kept crawling lower and lower and lower, and were at the lowest levels as of July that they've been in quite some time.
At the same time, you also had some pretty high valuations. There's a couple of examples here, the lowest free cash flow yield on the tech sector since the early 2000s. Free cash flow yield is essentially the inverse of a PE if you think about that, so lower is more expensive.
And then look at the price-to-book ratio of global semiconductor stocks. They've traded anywhere from 2 to 4 at the high end over most of the prior two decades. They just hit 12 recently. So there was a lot of enthusiasm here, the AI trade, which may still come back at some point but right now is repricing, given the levels that it was trading at.
And then the last thing on markets is—I always thought 1998—I remember 1998 really well. I was working in emerging markets, and we were dealing with the Russian default. And it also happened to be the year with the lowest share of S&P stocks outperforming the market. So in other words, the returns were incredibly concentrated in a handful of stocks and sectors that weren't affected by the global turmoil. This year is even lower. So it's the lowest level on record in terms of the share of the market that was actually outperforming the market as of a few weeks ago.
So this is not a good setup for a shock like this. And that's why we're seeing some of the corrections that we're seeing. So far, the magnitude of the corrections is completely consistent with what we've seen in prior both bull and bear markets. And so they're not necessarily indicative of anything that may happen or not happen here. But that's why I think it's important to also look at what's going on with the labor markets.
Right now, the labor markets look pretty weak. There's a lot of debates we're having internally. Everybody's not on the same page, which is normal for this kind of thing.
Last Friday, the payroll report was pretty weak. There were some things you could have done to say, well, there was some natural disaster issues. There were some auto plant retooling issues. But big picture, the unemployment rate is rising for a number of different reasons, both layoffs and increases in the labor force.
But if we look broadly, a lot of the labor indicators are pretty weak, manufacturing hours worked, overtime hours worked, temporary help, PMI employment survey. There's a household survey that surveys job loss probabilities. And then there's other data on the labor markets that's weakening, but weakening from very high conditions like wage growth, payroll growth, voluntary quit rates.
But when you put the picture together, it's a weak labor market. The Fed should already be easing. I think it makes sense to pencil in 100 basis points of Fed easing this year, which would take the sting out of things. I still think it's going to be a volatile couple of months. And for anybody looking to put money to work, you might get some better levels over the next month or so or month or two than right now.
Now, in terms of putting money to work, the other topic we had planned to talk about this week was investments in distressed office buildings. Their capital is mobilizing for this, I think for the right reasons. Anytime anything gets crushed, it's worth taking a look to see if there are some opportunities there.
But the first thing we did was to say, what's going on with work from home? Because ultimately, that's the catalyst for all of these distressed and quasi-defaulting and empty office buildings. And to understand work from home, you have to triangulate. There's no one pure perfect source for what's going on with work from home.
My personal favorite is mass transit ridership. Because, yeah, some people come in and out of the city for shopping or going to cities for other reasons. Weekday mass transit ridership in the 22 cities we look at is very indicative of back-to-work behavior. And the median level is 70% in terms of total ridership as a percentage of 2019 levels.
Some cities are doing really well. We have a table in here that goes through each one of the cities. Salt Lake City, Miami and Houston are practically back at pre-COVID levels. And then there are places like San Francisco, of course, Atlanta, Detroit and Chicago, which are bringing up the rear. But the median recovery rate is 70%. So keep that number in your head, 70%, 30% below pre-COVID levels, because that 30% is a lot like two other numbers that we're looking at, one of which is of a percentage of full-time days worked from home.
This is a survey from Nicholas Bloom at Stanford. They've institutionalized this. We have a chart here that shows for 10 or 12 cities that those numbers have converged to about 30% to 35% work-from-home days. I don't see any cities breaking through that 30% level. Maybe they will in the next few months. But as of June, none of them had.
And then there's the Kastle data, which a lot of you are familiar with, which is the key fob swipes. And this data shows even lower utilization rates. There might be a skew in the Kastle building set towards worse-quality buildings. I don't know. But they're also telling you the same thing, which is that over the last few months, utilization rates haven't really changed.
So to me, we're stuck at this kind of 30% to 35% work-from-home, white-collar job situation. And that has obvious implications for office building, loans, bank loans, commercial mortgage-backed securities and then distressed values for investing in real estate. Now if you're looking—if you're looking for good news, you can find it. There's a couple of second and third derivative improvements in the commercial office market.
One of my favorite ones I think is a fascinating number to look at, is every time a lease matures, assuming they're not going to vacate the building, they re-underwrite their space needs. And in 2022 and early '23, they were giving back almost 15% of the space on average. That's average. That's a big number.
That number has since fallen to about 10% to 12%. So, in other words, even today the average tenant is giving back 10% to 12% of the space when the lease is up. And now that's less bad than it was.
So that's what the third derivative of improvement is. Same thing for net absorption data, which shows you the difference between space leased and space vacated. Those numbers are still negative, but less negative on a national basis.
So there are some second and third derivative improvements if you look for them. The problem is the first derivative numbers, which are the most direct ones, look pretty ugly and not that different from what they did in 2008, 2009. And by that, I'm referring to the commercial mortgage-backed securities loans, which are about 15% or 20% of all real estate loans.
And you can look at things like loans and special servicing, loans and modification, delinquent special servicing, 60-day delinquent, foreclosed. All these trends are—the slope and the speed, and the levels all look a lot like 2008. And there were some pretty substantial write-downs that took place then. So all things being equal, distressed office investors should be looking for some really big discounts.
Other office market indicators—the absorption by building vintage is terrifying. And there's a chart that we have here that we've shown before. And anybody that follows the office markets has probably seen this. All the new leasing is taking place in buildings built over the last 10 years. Any building more than two years old, even in the 2010s, has been seeing net negative absorption, and in other words, net leasing reductions.
So older buildings look a lot like dead money. And when you consider the change in valuations and the change in tenancy, it's very easy to envision an enormous amount of maturing loans, and maturing office loans look like 4 to 500 billion over the next couple of years. You can easily imagine that the majority of those will be above 90% or 100% loan-to-value when they get re-underwritten. So there's a lot of wood to chop for the industry here in terms of loan modifications, foreclosures and things like that.
Now, it's typically a good time to buy when things sound terrible. And I really like the chart that we have in here. We have several bottom fishing charts in different markets. And there's a real estate one in here. And it goes back to the financial crisis, and it looks at residential and commercial delinquency rates.
And then it looks alongside that at the REIT Index. In other words, if you said I don't want to start investing until delinquency rates stop rising, you would have missed almost the entire recovery in the REIT Index. And the REIT Index bottomed pretty early in 2009, in March 2009, when delinquency rates weren't even half of ultimately how high they got to.
So distressed investors know that there are times when you have to ignore some of the stuff that's in the financial press and look at prices just to see how cheap things get. Now, we went through and compiled examples of discounted office building sales. Some of these are pretty terrifying, 60% 60%, 70%, 80% discounts on a per-square-foot basis to what they were priced at before COVID.
A former analyst of mine, who went to work in commercial real estate and has worked there for many 15 years or so, is working on a lot of deals. And most of the deals he is working on in New York City, for example, are priced at $200 to $400 a square foot, compared to $500 to $1,000 a square foot, where those same buildings would have priced pre-COVID.
A lot of times, the original owners have essentially no equity left. Seller financing is needed by the lenders in order to entice a new buyer to come in. But if you can spot opportunities in distressed office at 60%, 70%, 80% discounts to pre-COVID levels, that sounds like a pretty interesting thing to do with your money. And I do see examples of capital mobilizing to take advantage of some of those opportunities.
So anyway, we wanted to get this thing out to you today, given what's going on in the markets and in Japan. Take a look at the Eye on the Market itself for all the details and all the charts. And I will see you again in early September. Thank you. Bye.
[WHOOSHING]
(DESCRIPTION)
Title card: JP Morgan, Eye on the market. JP Morgan. August 2024, there is no place like home. Animation: Dorothy sits on a green couch in her living room and looks at her laptop while she wears her ruby red slippers. There is a picture on the wall of the lion, the tin man, and the scarecrow. Video feed on the right. The speaker Michael Cembalest has short hair glasses and a dark shirt. He addresses us from a virtual backdrop which shows a room with a decorated bookcase and a window overlooking a city.
(SPEECH)
Good afternoon, everybody. This is the August Eye on the Market. And this one's Eye on the Market is There's No Place Like Home. That has two meanings as it relates to what we're talking about in the Eye on the Market this time. One of them obviously has to do with the repatriation of Japanese yen funding and unwinds by Japanese investors and global hedge funds.
And then the second one has to do with work from home trends and the impact on distressed office real estate investing. So those are two different topics, both of which are linked by something having to do with home. So let's talk about the yen unwind first.
(DESCRIPTION)
Slide, the 20 trillion Japanese Inc carry trade. A line graph with years from 2020 to 2024 in the horizontal axis and index from -50 to 175 in the vertical axis.
(SPEECH)
The yen carry trade is the biggest carry trade I've seen in over 30 years. It seems like free money until it isn't.
The first chart here looks at how over the last few years, if you had been funding in yen in short-term fixed income or even as a Japanese household avoiding investing in yen and investing overseas instead, you made a lot of money. But then with a yen framework, an appreciation in the yen would really mess all that up.
There were some interesting research out of Deutsche Bank late last year where they did all the math and they combined Japanese pension plans, state-owned banks, the Bank of Japan, and the households, and computed that they had one giant $20 trillion carry trade going, where they fund in short-term bank deposits and then invest either in long-duration yen assets domestically or in all sorts of overseas foreign assets. So that carry trade is getting jolted as some of those entities sell overseas positions and repatriate their yen back home or by global macro hedge funds that are forced to unwind because of some of the stop losses that they're experiencing.
And the first chart here shows examples of Mexican fixed income or the S&P 500 or anything that you could have bought by funding a Japanese yen and how much money you would have made and recently lost.
(DESCRIPTION)
Slide, fed tightening emboldens the shorts. Yen collapses as fed tightens in 2022 to 2023. A line graph with years from 2020 to 2024 in the horizontal axis and exchange rate in yen from 100 to 170 in the vertical axis.
(SPEECH)
So to just roll back the clock a little bit, the Fed, when it started to tighten in 2022, it really emboldened the shorts on the yen. And that's when the yen went to its highest level since 1985 or 1986 when it hit 160.
The yen was so weak that the Bank of Japan actually intervened with about $30 or $40 billion of intervention just last month to prevent it from depreciating further. And
(DESCRIPTION)
Slide, New sheriff in town, B.O.J. policy rate, wage growth and inflation. A line graph with years from 2020 to 2024 in the horizontal axis and percent from 0 to 6 in the vertical axis.
(SPEECH)
I think they missized it, and now you've got this massive surge in the yen.
The other thing that's happening is after many years of essentially zero policy rates in Japan, core CPI and the spring wage negotiations, which are kind of a thing that you follow in Japan as it relates to wage increases, are running anywhere from 3% to 5%. So I understand the pressure on the Bank of Japan to raise policy rates when wage inflation and core inflation are several hundred basis points higher than the policy rate.
And the amazing thing is it took one single tiny little 25 basis point hike to set this whole thing in motion. And that's the hard thing about these global carry trades and the various derivative markets that enable them. It's very hard to at any given point in time just how much money is in them.
Now,
(DESCRIPTION)
Slide, B.O.J. Hike Plus $37 billion in July intervention. 23 day changes in value of yen versus the USD since 1971. A graph with years from 1971 to 2021 in the horizontal axis and percent from -15 to 20 in the vertical axis.
(SPEECH)
for what it's worth, we've now had between the BOJ hike and the July intervention from the Bank of Japan has driven the yen-- it's probably the third or fourth biggest yen rally since the early '70s. Our FX strategists think at about 140 to 145, the yen is much closer to fair value than where it was three weeks ago.
But those are for some very abstract calculations based on regressions and interest rate differentials and things like that. And most of the time when you have some kind of correction like this, things tend to overshoot. That said, it does feel like we're much closer to a fair value on the yen, which should slow down some of the risk unwinding that's been taking place.
The global equity markets have all been stung. Most of the equity markets are still up on a year-to-date basis if you look regionally, whether it's the US or Europe or Asia more broadly. A couple of the markets are down for the year, but the markets weren't really set up well for this.
(DESCRIPTION)
Slide, Markets were poorly set up for this. Short interest on the S&P 500 and NASDAQ. A line graph with years from 2018 to 2025 in the horizontal axis and percent of shares outstanding from 7 to 28 in the vertical axis.
(SPEECH)
Some of these things you'll have seen from us before. But there was so much enthusiasm on the artificial intelligence language model, NVIDIA craze, that by the end of July, short interest on the S&P and the NASDAQ essentially had all but disappeared. Anybody that over the last few years that had been betting against the market gave up. And there's a chart in the here that is just amazing to see as the shorts on the NASDAQ and the S&P just kept crawling lower, and lower, and lower and were at the lowest levels as of July that they've been in quite some time.
(DESCRIPTION)
Slide, tech and semi evaluations at extremes. A line graph with years from 1995 to 2025 in the horizontal axis and percent of free cash flow yield from 0 to 13 in the vertical axis.
(SPEECH)
At the same time, you also had some pretty high valuations. There's a couple of examples here, the lowest free cash flow yield on the tech sector since the early 2000s. Free cash flow yield is essentially the inverse of a PE if you think about that, so lower is more expensive.
And then look at the price to book ratio of global semiconductor stocks. They've traded anywhere from 2 to 4 at the high end over most of the prior two decades. They just hit 12 recently. So there was a lot of enthusiasm here, the AI trade, which may still come back at some point but right now is repricing given the levels that it was trading at.
And
(DESCRIPTION)
Slide, constituents out performing the S&P 500. A bar graph with years from 1990 to 2024 in the horizontal axis and percent of companies out performing total return from 20 to 65 in the vertical axis.
(SPEECH)
then the last thing on markets is-- I always thought 1998-- I remember 1998 really well. I was working in emerging markets, and we were dealing with the Russian default. And it also happened to be the year with the lowest share of S&P stocks outperforming the market. So in other words, the returns were incredibly concentrated in a handful of stocks and sectors that weren't affected by the global turmoil. This year is even lower. So it's the lowest level on record in terms of the share of the market that was actually outperforming the market as of a few weeks ago.
So this is not a good setup for a shock like this. And that's why we're seeing some of the corrections that we're seeing. So far, the magnitude of the corrections is completely consistent with what we've seen in prior both bull and bear markets. And so they're not necessarily indicative of anything that may happen or not happen here. But that's why I think it's important to also look at what's going on with the labor markets.
Right
(DESCRIPTION)
Slide, Sahm bad news on labor markets. Sahm rule, unemployment rate relative to recent low. Sahm is spelled S.A.H.M., A line graph with years from 1950 to 2025 in the horizontal axis and percent from negative 0.5 to positive 2 in the vertical axis.
(SPEECH)
now, the labor markets look pretty weak. There's a lot of debates we're having internally. Everybody's not on the same page, which is normal for this kind of thing.
Last Friday, the payroll report was pretty weak. There were some things you could have done to say, well, there was some natural disaster issues. There were some autoplant retooling issues. But big picture, the unemployment rate is rising for a number of different reasons, both layoffs and increases in the labor force.
But if we look broadly, a lot of the labor indicators are pretty weak, manufacturing hours worked, overtime hours worked, temporary help, PMI employment survey. There's a household survey that surveys job loss probabilities. And then there's other data on the labor markets that's weakening but weakening from very high conditions like wage growth, payroll growth, voluntary quit rates.
But when you put the picture together, it's a weak labor market. The Fed should already be easing. I think it makes sense to pencil in 100 basis points of Fed easing this year, which would take the sting out of things. I still think it's going to be a volatile couple of months. And for anybody looking to put money to work, you might get some better levels over the next month or so or month or two than right now.
(DESCRIPTION)
Slide, recovery in mass transit. Recovery in mass transit writership versus Q2 2019 levels, median equals 70%. A chart with six different columns labeled number, city, recovery from Q2 2019 to Q1 2024, recovery from Q2 2019 to Q2 2023, difference, and transit authorities.
(SPEECH)
Now, in terms of putting money to work, the other topic we had planned to talk about this week was investments in distressed office buildings. Their capital is mobilizing for this I think for the right reasons. Anytime anything gets crushed, it's worth taking a look to see if there are some opportunities there.
But the first thing we did was to say, what's going on with work from home? Because ultimately, that's the catalyst for all of these distressed and quasi defaulting and empty office buildings. And to understand work from home, you have to triangulate. There's no one pure perfect source for what's going on with work from home.
My personal favorite is mass transit ridership. Because, yeah, some people come in and out of the city for shopping or going to cities for other reasons. Week day mass transit ridership in the 22 cities we look at is very indicative of back-to-work behavior. And the median level is 70% in terms of total ridership as a percentage of 2019 levels.
Some cities are doing really well. We have a table in here that goes through each one of the cities. Salt Lake City, Miami, and Houston are practically back at pre-COVID levels. And then there are places like San Francisco, of course, Atlanta, Detroit, and Chicago, which are bringing up the rear. But the median recovery rate is 70% So keep that number in your head, 70%, 30% below pre-COVID levels, because that 30% is a lot like two other numbers that we're looking at, one of which is of a percentage of full-time days worked from home.
This
(DESCRIPTION)
Slide, work from home trends. Work from home, large metropolitan cities. A line graph with years from October 2020 to April 2024 in the horizontal axis and percent of full days paid worked from home from 20 to 45 in the vertical axis. A second line graph labeled commercial property utilization rates based on security card key fob swipes versus February 2020 levels. A line graph with years from 2020 to 2024 in the horizontal axis and percent from 0 to 70 in the vertical axis.
(SPEECH)
is a survey from Nicholas Bloom at Stanford. They've institutionalized this. We have a chart here that shows for 10 or 12 cities that those numbers have converged to about 30% to 35% work from home days. I don't see any cities breaking through that 30% level. Maybe they will in the next few months. But as of June, none of them had.
And then there's the Kastle data, which a lot of you are familiar with, which is the key fob swipes. And this data shows even lower utilization rates. There might be a skew in the Kastle building set towards worse quality buildings. I don't know. But they're also telling you the same thing, which is that over the last few months, utilization rates haven't really changed.
So to me, we're stuck at this kind of 30% to 35% work-from-home white collar job situation. And that has obvious implications for office building, loans, bank loans, commercial mortgage-backed securities, and then distressed values for investing in real estate.
(DESCRIPTION)
Slide, second and third derivative improvements in commercial office. Downsizing rate for major tenants, 25,000+ square feet. A line graph with years from 2021 to 2024 in the horizontal axis and percent of space out from -17.5% to -10% in the vertical axis. A bar graph labeled net absorption with years from 2015 to 2023 in the horizontal axis and square feet from -50 to 40 in the vertical axis.
(SPEECH)
Now if you're looking-- if you're looking for good news, you can find it. There's a couple of second and third derivative improvements in the commercial office market.
One of my favorite ones I think is a fascinating number to look at is every time a lease matures, assuming they're not going to vacate the building, they re-underwrite their space needs. And in 2022 and early '23, they were giving back almost 15% of the space on average. That's average. That's a big number.
That number has since fallen to about 10% to 12%. So, in other words, even today the average tenant is giving back 10% to 12% of the space when the lease is up. And now that's less bad than it was.
So that's what the third derivative of improvement is. Same thing for net absorption data, which shows you the difference between space leased and space vacated. Those numbers are still negative, but less negative on a national basis.
So
(DESCRIPTION)
Slide, distressed loans, office CMBS distress tracker. A line graph with years from 2002 to 2023 in the horizontal axis and percent 0 to 15 in the vertical axis.
(SPEECH)
there are some second and third derivative improvements if you look for them. The problem is the first derivative numbers, which are the most direct ones, look pretty ugly and not that different from what they did in 2008, 2009. And by that, I'm referring to the commercial mortgage-backed securities loans, which are about 15% or 20% of all real estate loans.
And you can look at things like loans and special servicing, loans and modification, delinquent special servicing, 60-day delinquent, foreclosed. All these trends are-- the slope, and the speed, and the levels all look a lot like 2008. And there were some pretty substantial write downs that took place then. So all things being equal, distressed office investors should be looking for some really big discounts.
(DESCRIPTION)
Slide, other office market indicators. Net absorption by building vintage. A bar graph with negative values from -200 and positive values to 200 in the horizontal axis. There are years from pre-1962 2015 present in the vertical axis. The years indicate your built. A line graph labeled bottom fishing during recesses, real estate delinquencies and R.E.I.T. returns. There are years in the horizontal axis from 2016 till 2011 and percent delinquent from 0% to 14% in the vertical axis.
(SPEECH)
Other office market indicators-- the absorption by building vintage is terrifying. And there's a chart that we have here that we've shown before. And anybody that follows the office markets has probably seen this. All the new leasing is taking place in buildings built over the last 10 years. Any building more than two years old, even in the 2010s, has been seeing net negative absorption and, in other words, net leasing reductions.
So older buildings look a lot like dead money. And when you consider the change in valuations and the change in tenancy, it's very easy to envision an enormous amount of maturing loans and maturing office loans look like 4 to 500 billion over the next couple of years. You can easily imagine that the majority of those will be above 90% or 100% loan to value when they get re-underwritten. So there's a lot of wood to chop for the industry here in terms of loan modifications, foreclosures, and things like that.
Now, it's typically a good time to buy when things sound terrible. And I really like the chart that we have in here. We have several bottom fishing charts in different markets. And there's a real estate one in here. And it goes back to the financial crisis, and it looks at residential and commercial delinquency rates.
And then it looks alongside that at the REIT index. In other words, if you said, I don't want to start investing until delinquency rates stop rising, you would have missed almost the entire recovery in the REIT index. And the REIT index bottomed pretty early in 2009, in March 2009, when delinquency rates weren't even half of ultimately how high they got to.
So distressed investors know that there are times when you have to ignore some of the stuff that's in the financial press and look at prices just to see how cheap things get.
(DESCRIPTION)
Slide, discounted office building sales. A chart with six columns labeled address, city, 2023 to 2024 discount, 2023 to 2024 price PSF, original price PSF, and original purch year.
(SPEECH)
Now, we went through and compiled examples of discounted office building sales. Some of these are pretty terrifying, 60% 60%, 70%, 80% discounts on a per square foot basis to what they were priced at before COVID.
A former analyst of mine, who went to work in commercial real estate and has worked there for many 15 years or so, is working on a lot of deals. And most of the deals he is working on in New York City, for example, are priced at $200 to $400 a square foot, compared to $500 to $1,000 a square foot where those same buildings would have priced pre-COVID.
A lot of times, the original owners have essentially no equity left. Seller financing is needed by the lenders in order to entice a new buyer to come in. But if you can spot opportunities in distressed office at 60%, 70%, 80% discounts to pre-COVID levels, that sounds like a pretty interesting thing to do with your money. And I do see examples of capital mobilizing to take advantage of some of those opportunities.
So
(DESCRIPTION)
Slide. JP Morgan, Eye on the market. JP Morgan. August 2024, there is no place like home. Animation: Dorothy sits on a green couch in her living room and looks at her laptop while she wears her ruby red slippers. There is a picture on the wall of the lion, the tin man, and the scarecrow.
(SPEECH)
anyway, we wanted to get this thing out to you today given what's going on in the markets and in Japan. Take a look at the Eye on the Market itself for all the details and all the charts. And I will see you again in early September. Thank you. Bye.
[WHOOSHING]
(DESCRIPTION)
Logo: J.P. Morgan.
