Michigan PSC approves suite of low-carbon energy infrastructure grants
One grant funds study of CCS for 1.6 GW gas plant
Several grants for renewable natural gas projects
The Michigan Public Service Commission June 9 approved $50 million in low-carbon energy infrastructure grants to support projects such as energy storage, community solar, renewable natural gas and electric vehicle infrastructure.
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“The impact that these projects will have on the state of Michigan is impressive,” said Katherine Peretick, a commissioner at the MPSC. “The estimated impact on reducing greenhouse gas emissions just from these grants is well over 500,000 tons of [carbon dioxide] per year,” she said at a meeting of the MPSC.
Michigan Governor Gretchen Whitmer issued an executive order in 2020 calling for economy-wide carbon neutrality by 2050. In 2022, the state outlined a plan to achieve that goal, including phasing out coal-fired power by 2030.
In 2022, Whitmer also signed into law two measures providing the $50 million funding for low-carbon energy infrastructure grants. The legislation required winning grants to support the reduction of greenhouse gas emissions, be supported by a cost-benefit analysis and reduce customer energy cost burdens, the MPSC said in a statement.
One grant went to Midland Cogeneration Venture to study the feasibility of deploying carbon capture and sequestration at its plant. The natural gas-fired facility produces 1.6 GW of electricity, and also generates steam energy for nearby chemical production companies.
“This development will play a significant role in decarbonizing Michigan’s electricity sector in the near term, with the potential for the first ton of [carbon dioxide] to be sequestered as early as 2029,” according to the grant application.
The project’s anticipated storage sites may only require two to three miles of pipeline, the application said. “We expect that the project will have a cost advantage due to local CO2 storage zones,” the application said.
The project that won the largest share of the funds was the Lansing Board of Water and Light grid-scale battery energy storage system and ground-mounted solar project, which received $12 million. The Lansing BWL sought funding to develop a 4-MW solar PV project and four 43.1-MWh battery energy storage systems.
The solar and storage projects are part of the board’s broader plan for the early retirement of the coal-fired, 154-MW Erickson power station and construction of a natural gas reciprocating internal combustion engine power plant, which will have future capability to crossfire using renewable hydrogen, according to the grant application.
The project that won the second-largest portion of the grants is a project by DTE Gas to expand gas distribution in several counties that currently rely on propane for home heat and cooking.
Grants also went to several renewable natural gas projects. The grants to the Consumers Energy Swisslane Farm RNG project and the Consumers Energy TDI Farm RNG project will partially fund plans to use anaerobic digesters to turn dairy farm animal manure into biogas, which is then processed to meet gas pipeline specifications.
And one grant went to the Kent County Bioenergy Facility, which will use an anaerobic digester to turn municipal solid waste into renewable gas.
Another grant went to the Kalamazoo Nature Center to develop an electric vehicle infrastructure plan.
Visualizing Gold Price and U.S. Debt (1970-2023): Chart
The U.S. banking sector has more than 4,000 FDIC-insured banks that play a crucial role in the country’s economy by securely storing deposits and providing credit in the form of loans.
This infographic visualizes all of the deposits, loans, and other assets and liabilities that make up the collective balance sheet of U.S banks using data from the Federal Reserve.
With the spotlight on the banking sector after the collapses of Signature Bank, Silicon Valley Bank, and First Republic bank, understanding the assets and liabilities that make up banks’ balance sheets can give insight in how they operate and why they sometimes fail.
Assets are the foundation of a bank’s operations, serving as a base to provide loans and credit while also generating income.
A healthy asset portfolio with a mix of loans along with long-dated and short-dated securities is essential for a bank’s financial stability, especially since assets not marked to market may have a lower value than expected if liquidated early.
ℹ️ Mark-to-market means current market prices are being used to value an asset or liability on a balance sheet. If securities are not marked to market, their value could be different once liquidated.
As of Q4 2022, U.S. banks generated an average interest income of 4.54% on all assets.
Loans and leases are the primary income-generating assets for banks, making up 53% of the assets held by U.S. banks.
These include:
Securities make up the next largest portion of U.S. banks’ assets (23%) at $5.2 trillion. Banks primarily invest in Treasury and agency securities, which are debt instruments issued by the U.S. government and its agencies.
These securities can be categorized into three types:
Along with Treasury and agency securities which make up the significant majority (80%) of U.S. banks’ securities, banks also invest in other securities which are non-government-issued debt instruments like corporate bonds, mortgage-backed securities, and asset-backed securities.
Cash assets are a small but essential part of U.S. banks’ balance sheets, making up $3.1 trillion or 13% of all assets. Having enough cash assets ensures adequate liquidity needed to meet short-term obligations and regulatory requirements.
Cash assets include physical currency held in bank vaults, pending collections, and cash balances in accounts with other banks.
Liabilities represent the obligations banks must fulfill, including customer deposits and borrowings. Careful management of liabilities is essential to maintain liquidity, manage risk, and ensure a bank’s overall solvency.
Deposits make up the largest portion of banks’ liabilities as they represent the money that customers entrust to these institutions. It’s important to note that the FDIC insures deposit accounts up to $250,000 per depositor, per insured bank, for each type of account (like single accounts, joint accounts, and retirement accounts).
There are two primary types of deposits, large time deposits and other deposits. Large time deposits are defined by the FDIC as time deposits exceeding $100,000, while other deposits include checking accounts, savings accounts, and smaller time deposits.
U.S. banks had $17.18 trillion in overall deposits as of April 12th 2023, with other deposits accounting for 74% of the overall liabilities while large time deposits made up 9%.
After deposits, borrowings are the next largest liability on the balance sheet of U.S. banks, making up nearly 12% of all liabilities at $2.4 trillion.
These include short-term borrowings from other banks or financial institutions such as Federal Funds and repurchase agreements, along with long-term borrowings like subordinated debt which ranks below other loans and securities in the event of a default.
Just like any other business, banks have to balance their finances to remain solvent; however, successful banking also relies heavily on the trust of depositors.
While in other businesses an erosion of trust with customers might lead to breakdowns in future business deals and revenues, only in banking can a dissolution in customer trust swiftly turn into the immediate removal of deposits that backstop all revenue-generating opportunities.
Although recent bank collapses aren’t solely due to depositors withdrawing funds, bank runs have played a significant role. Most recently, in First Republic’s case, depositors pulled out more than $101 billion in Q1 of 2023, which would’ve been more than 50% of their total deposits, had some of America’s largest banks not injected $30 billion in deposits on March 16th.
It’s important to remember that the rapidly spreading fires of bank runs are initially sparked by poor asset management, which can sometimes be detected on banks’ balance sheets.
A combination of excessive investment in long-dated held-to-maturity securities, one of the fastest rate hiking cycles in recent history, and many depositors fearing for and moving their uninsured deposits of over $250,000 has resulted in the worst year ever for bank failures in terms of total assets.
Citi, Commerzbank Stay Bullish on Gold Medium-To-Longer Term
Gold is expected to average $1,965 an ounce in the near term, analysts at Citigroup said as they turned neutral on the yellow metal from its previous target of $1,915-$2,100. Even so, “fresh bullish legs” could emerge in the medium term, they said.
Commerzbank said its assumption was that the Fed will not want to raise rates further after its pause, to avoid over-tightening of credit conditions. “If our experts are right, the gold price should rise in the coming months,” said Commerzbank, which maintains forecasts of $2,000 and $2,050 for the third and fourth quarters, respectively.
The front-month gold contract on New York’s Comex settled at $1,978.60 an ounce on Thursday, up $20.20, or 1%, on the day. For the week, it was up 0.5%, the same as the previous week.
The spot price of gold, which reflects physical trades in bullion and is more closely followed than futures by some traders, was at $1,965.76 by 16:30 ET (20:30 GMT), up $25.75, or 1.3% on the day. For the week, spot gold was up nearly 1%, adding to the previous week’s near flat close.
Bets for a Fed rate pause have grown despite higher weekly unemployment claims among Americans.
According to Investing.com’s Fed Rate Monitor Tool, there was a 73.7% chance that the central bank will stand down from a rate hike when its policy-makers sit on June 14.
To fight inflation, the Fed has raised interest rates by 500 basis points, or 5%, over the past 16 months, bringing them to a peak of 525 basis points, or 5.25%.
Ed Moya, analyst at online trading platform ONDA, said gold’s choppiness in recent weeks was due to a lack of conviction over the economy that hadn’t helped tip the market’s balance either way.
Gold traders now had their eyes on the next inflation reading due Tuesday from the U.S. Consumer Price Index report for May, Moya said.
The CPI hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April, for its slowest expansion since October 2021. The Fed’s favorite price indicator, the Personal Consumption Expenditures, or PCE, Index, meanwhile, grew by 4.4% in April. Both the CPI and PCE are, however, still expanding at more than twice the Fed’s 2% per annum target for inflation.
Technically, gold could be poised for highs of $1,990 and beyond even if it heads back towards mid-$1,900 levels, said Sunil Kumar Dixit, chief strategist at SKCharting.com.
It Is Friday and Beer Drinking Gold Investors From Around the World Can Rejoice!!: In Gold We Trust
Gold’s performance in terms of beer is excellent when compared to fiat currencies!
Today, you can buy roughly the same amount of beer per ounce of gold as at the end of WW2.
Read more about how you can protect your wealth with gold in this year’s
#IGWT report, available for free, right here:Silver Is Right up Against the Blue Massive Floodgate: Chart
Note that the chart already has a clearly defined false breakout so the big picture downmove for creating needed volatility before breakout, is already done.
Soon…
China’s Industrial Silver Demand Explosion!
There are many other news to cover, why CCTV news cover this one? Would the intention is to let Chinese public to know about the silver shortage, so they will participate also?
I guess China is going all in on solar. Interesting move.
We have solar for China, Nuclear for Finland, geothermal energy in Iceland and Hydrogen for Japan, possibly also in combination with super safe…
Nasdaq Composite Ratio Reaches Counter-Trend Resistance Area!
The dot com crash was brutal. But even in the demise of several tech stocks, investors knew that technology was our future.
And for the past 20 years technology stocks have been outperforming the broader market and leading the major stock market indices higher.
This comes into focus today, with a long-term “monthly” chart depicting the price ratio of the Nasdaq Composite to the S&P 500 Index. Here we can see that the Nasdaq has outperformed over the past 20 years.
HOWEVER, if we zoom in on the past 3 years, we can see that the ratio hit the 2000 high level and reversed lower. This reversal broke down below its rising trend line before staging a counter-trend rally.
Currently, the Nasdaq/S&P 500 ratio is testing dual resistance at (1). This could put the counter-trend rally at risk of a setback.
In my humble opinion, where the ratio stands at the end of the month could send a critical message to stocks!
Should the ratio breakout at (1), look for tech to continue to outperform the S&P!!!
This article was first published at See It Markets.com. To see the original post CLICK HERE.
Ben Bernanke Talks About Bank Runs, Inflation, A.I., Market Bubbles and More: NYT
The former Fed chairman shared his thoughts with our columnist.
I called Ben S. Bernanke, the former chairman of the Federal Reserve, late in the debt-ceiling standoff. It hadn’t been concluded quite yet but soon would be. This time, at least, the financial system averted another full-fledged crisis.
But when truly dire events happen and Congress and the White House are focused on political battles, the Fed often ends up as the “only game in town,” Mr. Bernanke said, “the only policymaker that can help an economy in trouble.”
Fixing the world’s urgent problems is no longer Mr. Bernanke’s responsibility. In 2014, he stepped down as Fed chair, after leading it through the global financial crisis. Now, at 69, he is a scholar at the Brookings Institution in Washington, devoting himself mainly to research and writing.
His research, showing “that bank crises can potentially have catastrophic consequences” and illustrating “the importance of well-functioning bank regulation,” earned him a Nobel Prize in economics in 2022. That academic work, and the changes he made at the Fed, have altered the way we understand financial news, even if he is making fewer headlines himself.
Yet, Mr. Bernanke said he still “monitors the Fed very carefully,” and in a wide-ranging interview, he discussed many thorny issues, including bank runs, inflation and threats to financial stability.
At the moment, the banking system appears to be stable, he said, but you never know. In the summer of 2007, for instance, when the global financial crisis started, Mr. Bernanke said he didn’t immediately recognize how “devastating” it was going to be. Now, he said, he regrets that it took “some months” to “appreciate the magnitude of the crisis.”
Conditions in the financial system appear to be fairly calm today, he said, but added, “I’ve learned from painful experience that one never says never; it’s always possible.”
In agreeing to an open-ended conversation, he insisted on one ground rule: He would not “second-guess the Fed.”
“I will tell you what I think the Federal Reserve is doing and why it’s doing it,” he said, “but I will not tell you what I think they should do at the next meeting,” he said.
Once Mr. Bernanke got rolling, his comments included these highlights:
Further bank runs could be headed off by raising the ceiling for deposit insurance. That insurance “should cover more than $250,000 per account,” perhaps by requiring larger bank depositors “to pay some kind of premium” for the benefit. His research, and that of his two fellow 2022 Nobel laureates, Douglas W. Diamond and Philip H. Dybvig, showed that fear of losing money at a weakened bank could set off or worsen bank runs, like those earlier this year, and lead to deep economic stress.
If the Fed had the legal authority that other central banks possess, it wouldn’t need to invoke emergency powers and set up temporary rescue “facilities” every time a crisis demands that it backstop “shadow banks,” which include hedge funds, investment banks, private equity funds, money market funds and the like. These giant institutions perform many of the functions of traditional banks. The Fed is hampered by “a structural flaw that was never corrected by Congress, which is that the Fed is restricted on normal grounds to lending only to banks and not to other types of financial institutions,” he said.
Don’t ever assume everything in the financial system is OK. It may not be. There is a need for constant monitoring and bolstering of systemic regulatory oversight to head off major problems. Mr. Bernanke’s research showed that “the financial crisis of the 1930s was a major factor in the Great Depression,” an insight that, he recalls, people “laughed at” when he first wrote about it. “I think it’s become quite conventional wisdom at this point that a big financial crisis is really bad for the economy.”
The Fed may need time to get inflation down to the 2 percent target he helped institute, but unlike some writers — including this columnist — he said that target must stand. Two percent isn’t an “ideal” number, he said, and during his early academic career, he advocated a higher target, of 3 or 4 percent, for Japan. But now, U.S. politics and practical reality mean the 2 percent target should be preserved, he said. “I would think that if the Fed announced tomorrow that it was raising the inflation target, that would destroy its credibility,” he said. And any attempt to raise the target might set off Congressional action that could have the opposite effect.
Are we in an A.I. bubble? Mr. Bernanke said it was hard to identify bubbles as they were forming, and to know what to do when one existed. “A.I. stocks are zooming up despite the fact that the overall economic environment is worrisome,” he said. “Is that a bubble? It depends on whether A.I. turns out to be the transformative technology that some people think it will be. Maybe it is, maybe it isn’t.” The problem is that when some bubbles collapse, they can wreak havoc, as the housing bubble did in 2008. Such a collapse can “bring down critical financial institutions and that creates tremendous financial distress.” He added, “If you have a strong and well-regulated financial system, then even if you have a bubble that comes down, the system should be able to weather it without massive effects on the economy.”
Regular news conferences by the Fed chair, which Mr. Bernanke initiated, and which his successors, Janet L. Yellen and Jerome H. Powell, expanded, are essential, he said. They are needed not just to convey the Fed’s messaging to market specialists, but also to explain what’s going on to the general public. At the onset of the 2007-8 crisis, he said, the Fed took a lot of heat for rescuing big Wall Street firms while, supposedly, neglecting the little guy. “It probably was impossible, but at least I should have tried to explain why it was important to preserve the stability of the financial system,” he said. “And why it would benefit everyone and not just the Wall Street C.E.O.s. There’s this feeling that the Fed is captured by Wall Street, which is just not true. But if you’re asking for regrets, I think that’s one thing I should have done more actively.”
The Fed, he said, had to innovate in those years because the economy was in a severe downturn and needed more help, yet the Fed had already reduced short-term interest rates to close to zero.
By 2011, he said, “we were facing a very, very bad situation with no more ammunition, in terms of the Fed funds rate.”
More fiscal stimulus — more spending — might have done the trick, he said. But, he recalled, “Congress was already trying to go to an austerity program, trying to cut back on fiscal policy.”
“And so essentially, the Federal Reserve was left as the only policymaker in Washington that could do anything about this desperately deep recession and all the job losses and all the cost that was imposing on workers and their families,” he said. “So we needed a new set of tools.”
By that point in his academic work, Mr. Bernanke had formulated the principles for quantitative easing (purchasing bonds and other securities to reduce longer-term interest rates) and forward guidance (using messaging to shift expectations). These become permanent parts of the Fed tool kit.
Large-scale fiscal stimulus certainly occurred in the recent pandemic downturn, but with inflationary consequences, so the Fed has been not only raising interest rates, but also using its new tools, too. In a reversal of quantitative easing, it has been paring down the assets it has purchased through the years, and sent out plenty of belt-tightening messages. At a policymaking meeting next week, the Fed will assess whether all these measures are slowing the economy.
The Fed’s job would be easier if fiscal policy were “more cooperative,” he said, but it’s most likely the central bank will frequently find itself “the only game in town.”
Mr. Bernanke has been churning out a stream of books and articles on both abstruse and topical subjects, including a paper in the American Economic Review based on his December Nobel lecture summarizing his life work. The paperback edition of his book, “21st Century Monetary Policy” was released in May, with a fresh analysis of recent events.
Like many of us, Mr. Bernanke is putting away money for retirement. A cottage industry of Fed watchers base their investment strategies on what they believe the Fed is doing. Mr. Bernanke may be the most sophisticated of Fed watchers, but he said he was “a very boring investor.” “I basically have a well-diversified portfolio,” he said. “I do not try to pick individual stocks. I don’t base my investments on what I think the Fed is going to do.”
In fact, Mr. Bernanke told me that he essentially practiced the straightforward approach that “you advocate in your column.” He added, “I’m certainly not going to advise people to buy meme stocks, or to do anything unusual.”
He summarized his approach this way: “The other day you said something like, you know, have your portfolio consistent with your risk aversion and with your liquidity needs.”
I’d say, make sure you can pay the bills first. Don’t put any money into the stock market that you can’t stand to lose. And invest for the long haul.
Based on Mr. Bernanke’s own example, I’d add: Think, study, innovate and do all you possibly can to keep the world afloat. But for your own personal investing, keep it simple.
The Fed And The Death Of Market Volatility, Bank Deposits Continue To Dwindle (VIX Down To 13.50)
The Federal Reserve doesn’t care if market volatility has collapsed, even though volaltility is necessary for a well-functioning capital market.
The VIX, volatility of the CBOE S&P 500 index, has declined to 13.5 as The Fed continues to slow M2 Money growth.
And with M2 money withrawal, so goes bank deposits.
Is Jerome Powell actually Uncle Limelight?
Lack of funding ‘problematic’ for DOE’s HALEU purchasing plan: NEI
Lack of adequate funding for the US Department of Energy’s HALEU Availability Program could make realization of the purchasing plan described by DOE in a draft solicitation “problematic,” a Nuclear Energy Institute official said June 9.
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HALEU is high-assay low enriched uranium, enriched to between 5% and 20% U-235, and is proposed to be used by most advanced reactor developers. Congress established the HALEU Availability Program in 2020.
DOE released two draft RFPs June 5, one for HALEU purchases and a second for deconversion of HALEU into uranium oxide and other forms for fuel fabrication. The comment period for both closes July 6.
“Due to a lack of sufficient funding, the only financial commitment DOE will make [in the draft RFP] is for licensing costs for HALEU facilities,” said Nima Ashkeboussi, NEI senior director for fuel supply.
Congress appropriated $700 million in the Inflation Reduction Act of 2022 in support of various HALEU program activities, including $500 million that is being considered for use in creating a commercial supply chain for HALEU.
The IRA “represents a strong initial down payment, but there is broad agreement in the industry that additional funding will be required to establish the domestic HALEU supply chain necessary to commercialize the next generation of advanced reactors,” uranium company Centrus Energy Corp. spokesperson Dan Leistikow said June 9.
Centrus said in May it is considering producing low-enriched uranium at its Ohio facility after finishing construction and initial testing of a DOE-funded demonstration centrifuge plant for HALEU.
In the DOE demonstration, Centrus will produce up to 20 kgU of HALEU by the end of 2023, followed by 900 kgU of HALEU production annually through 2032.
“Centrus is on track to begin first-of-a-kind HALEU production by the end of this year, and with sufficient funding, we can expand to whatever scale of production is required,” Leistikow said.
However, Ashkeboussi noted that when that funding becomes available, “DOE is requesting firm, fixed pricing for HALEU offtake. This creates a significant challenge due to the price volatility currently seen in the fuel market.”
That volatility stems primarily from a lack of adequate enrichment capacity in the West, as most utilities — including those that historically have used only Russian fuel — are seeking to diversify away from Russian supply of enriched uranium in the aftermath of that country’s February 2022 invasion of Ukraine.
According to the draft solicitation, DOE expects to issue one or more firm-fixed price and firm-fixed price with economic price adjustment contracts for HALEU production.
“We must jump-start a commercial-scale, domestic supply chain for HALEU,” said Kathryn Huff, DOE’s assistant secretary for nuclear energy, in the June 5 statement. “Acquiring these services in the United States will reduce reliance on Russia, create American jobs, and support U.S. climate and energy security goals.”
Currently Russia’s state-owned nuclear company Rosatom is the only commercial supplier of HALEU. Some advanced reactor developers had planned to purchase the material from Rosatom before Russia invaded Ukraine in February 2022.
DOE did not specify in the draft solicitation the amount or timeframe for its HALEU purchases. However, the department said in a statement June 2 that the HALEU Availability Program assumes production of between 5 metric tons and 145 metric tons of HALEU over a ten-year period.
“Although DOE prefers mining/milling and conversion also to occur in the United States, DOE will consider other countries within or outside North America. DOE expects mines that have existing operational licenses to supply uranium oxide product for this RFP,” DOE said in the draft solicitation.
For the second draft RFP, the department requested feedback on the deconversion of enriched uranium hexafluoride gas into metal or oxide forms to fabricate reactor fuel.
Such activities include transporting UF6 to deconversion facilities, performing the process, and storing the deconverted material until it can be shipped to a fuel fabricator.
DOE said it will use public comments “to inform” the final RFPs to be issued later this year. It said it intends to begin acquiring HALEU “as soon as possible.”
The periods of performance for the HALEU and deconversion contracts are expected to be about 10 years from the time of award.
DOE said more than 40 metric tons of HALEU “could be needed before the end of the decade, with additional amounts required each year, to deploy a new fleet of advanced reactors in a timeframe that supports the Biden-Harris Administration’s goal of 100% clean electricity by 2035.”
DOE is preparing an environmental impact statement to support its purchases of HALEU under the availability program, according to DOE’s notice of intent published June 5 in the Federal Register.
The goal is “to facilitate the establishment of commercial HALEU fuel production,” because currently there is “insufficient private incentive to invest in commercial HALEU production due to the current market base,” DOE said.
The notice said, “There is also insufficient incentive to invest in the necessary commercial deployment of advanced reactors because the domestic fuel supply chain does not exist.”
A 45-day public period to comment on scope of the EIS will begin June 5. DOE said it will hold three webcast scoping meetings June 21.
DOE said it expects to announce the availability of the draft EIS by the end of 2023 and the availability of the final EIS in the Federal Register in mid-2024.
A record of decision “will follow no sooner than 30 days after publication” of the final EIS, according to the notice.
It said the EIS will analyze reasonable alternatives, including a no-action alternative, and address several activities it said are necessary to facilitate HALEU fuel commercialization. Such activities include uranium production, conversion and enrichment; deconversion of uranium hexafluoride to uranium oxide and other forms; and transportation of HALEU.
In addition to those activities, “there are several reasonably foreseeable activities that could result from implementation” of the program, DOE said. They include fuel fabrication; reactor demonstration and testing; and spent fuel storage and disposition, the notice said.
DOE will assess in the EIS among other issues the potential effects on public health from radiation exposure and the potential for disproportionately high and adverse effects on minority and low-income populations.
It will also evaluate potential impacts on surface and groundwater; air quality and including climate change); plants, animals, and their habitats; and geology and soils.
The draft EIS will address potential impacts from the transportation of HALEU-related radioactive materials.
30 San Francisco Hotels Face Incoming Debt Maturity Wall As Default Dominos Begin
Park Hotels & Resorts stopped making payments on a $725 million loan secured by two San Francisco hotels this week. The loan is due in November, and dozens of other hotels in the crime-ridden metro area could experience a similar fate.
Emmy Hise, senior director of hospitality analytics at CoStar, provided San Francisco Chronicle with a reality check that San Francisco hotels, at least 30, are facing loans due in the next two years.
A debt maturity wall for the hotel industry is ahead as the Marxist shit (covered) city implodes under progressive leadership whose social justice policies have royally backfired, sparking a crime wave that has forced businesses to shutter doors and people to exit the city.
Here’s Park Hotels’ explanation of why it reduced exposure to the San Francisco market:
Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges – both old and new: record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future.”
Hise warned San Francisco is experiencing the slowest recovery of any large metro area in the country. She explained that daily room rates of $234 this past year are below 2019 levels and are a margin crusher for hotel operators because of high inflation.
Also, occupancy rates have yet to recover from pre-Covid times as those on holiday or business refuse to visit the crime-ridden city.
As the hotel debt maturity wall quickly approaches, high-interest rates and credit tightening make it challenging for operators to refinance and could spark a wave of defaults.
And maybe the dominos have already fallen. Park Hotels is one of many. As the Chronicle detailed:
Other San Francisco hotels such as the Huntington on Nob Hill and Yotel on Market Street were recently sold in foreclosure auctions.
Is Hilton near Chinatown the next domino to fall?
The owner of SF’s biggest and fourth-biggest hotels is surrendering them. Over 30 more SF hotel owners have mortgage deadlines in next two years
Next biggest is a Hilton near Chinatown, which has a $97 million loan due in January, $9.3 million paid off.https://t.co/b7hp9rxmBz
— Roland Li (@rolandlisf) June 7, 2023
So it’s clear a perfect storm of terrible liberal policies transforming San Fran into a ‘hellhole’ that has crippled its recovery plus tightening credit conditions via the Federal Reserve has likely doomed a whole bunch of hotel operators across the metro area that might have no other choice but to default in the coming quarters, if not sooner.
What’s next for these empty skyscrapers? Office conversions are off the table since that side of the CRE space is imploding. So maybe apartments, but even then, who wants to live in a city where Democrats have turned it into Grand Theft Auto-esque conditions?
One last thing, just days before ParkHotels‘ announcement, San Francisco’s Mayor, London Breed, made a significant U-Turn to re-fund police after pushing for years to defund it. What a nightmare Democrats have created for everyone.
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Treasury Secretary Yellen Warns of Commercial Real Estate ‘Issues’ That Could Strain Banks: MW
““I do think that there will be issues with respect to commercial real estate.””
Treasury Secretary Janet Yellen, in her first interview since the U.S. debt-ceiling was lifted last week by Congress, warned on Wednesday about the potential for banks to feel strain from their exposure to weakening commercial real estate valuations.
Yellen was asked by CNBC “Squawk Box” host Andrew Ross Sorkin about if she’s worried about the state of estimated $20.7 trillion commercial real-estate market, particularly the office, and if weakness in the sector could potentially spark more bank failures.
“Well, I do think that there will be issues with respect to commercial real estate,” Yellen said. “Certainly, the demand for office space since we’ve seen such a big change in attitudes and behavior toward remote work has changed and especially in an environment of higher interest rates.”
Major landlords from Blackstone Inc.
BX,
to Brookfield Corp.
BN,
have been bracing for a significant drop in office property values, as the Federal Reserve’s inflation fight puts an end to an era of abundant and cheap debt.
While the final word on wobbling property prices won’t be known for some time, PGIM Fixed Income, a key investor in commercial property debt, recently said they expect office values to fall 20%-50% from peak levels, while multifamily values could drop as much as 22.5%, in part because financing has become more expensive and scarce.
See: Commercial real estate’s debt machine is broken down
Researchers at the NYU Stern School of Business and Columbia Business School recently estimated there has been a $506.3 billion decline in office values from 2019 to 2022 nationally in the wake of the pandemic which could feed a “doom loop” in some big cities.
They estimate banks own 61% of U.S. commercial property debt. They also see potential for the value of New York City’s office stock to drop 44% from 2019 to 2029 due to stress in the sector from flexible work arrangements.
“I think banks are broadly preparing for some restructuring and difficulties going ahead,” Yellen said, adding that the overall level of liquidity at banks looks strong and that stress tests of the largest banks show they have adequate capital to withstand fallout from the commercial property market.
She also said banking supervisors will continue to closely monitor “a range of banks to make sure that they are adequately prepared to deal with it.”
Yellen also said that, “while there will be some pain associated with this, that banks should be able to handle the strain.”
Related: Blackstone wrote down its stake in this Chicago office building to $0. Now it’s talking with lenders on the debt coming due.
