Worrying mortgage debts, Dutch lithograph machines, Ethiopia's drive to the sea & the history of Vesuvius
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Tony Swain was born in Lisburn, Northern Ireland in 1967 — just before the start of the Troubles. He studied in Liverpool and Glasgow, where he currently lives and works. He first started painting on newspaper for reasons of cheapness, and he continues to reconstruct the mess of green and urban Britain through its used news. The National Galleries of Scotland sums up his work well:
Tony Swain works with a restricted range of materials including acrylic paint and what he describes as ‘pieced’ newspaper: everyday broadsheet newspapers which have been taken apart and re-formed to provide the artist with a canvas. The existing words and images on the newsprint are incorporated, adapted or obliterated in the process of making a new painting.
Through this dual process of collage and painting, Swain teases out fantastical distorted landscapes and impossible structures that hover on the border between reality and fantasy. They seem unstable, as though they exist in some other dimension where the usual laws of geography and physics don’t apply. The paintings are shaped by the artist until a balance is achieved between abstraction and representation.
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A debt bomb
$117bn of commercial mortgages tied to offices will fall due this year on hundreds of big US office buildings that their owners are likely to struggle to refinance at current interest rates.
Many of these mortgages were taken out a decade ago in an era when interest rates were far lower. Since then, commercial mortgage rates have nearly doubled, while the performance of many buildings has sunk, raising the prospect of billions of dollars of losses for investors. “It’s going to be a problem to get some of these refinancings done,” said John Duncan, who heads the real estate finance practice at law firm Polsinelli. “We’re seeing deals where even sophisticated borrowers are calling it a day and asking their lenders whether they would like to take the keys.” Unlike US home loans, commercial mortgages are almost entirely interest- only. That means developers of large properties tend to have low monthly payments, but face a balloon payment equal to the original loan the day the mortgage comes due.
The expected losses at this point are on a much smaller scale than during the 2008 housing crisis. But soured loans could cause billions in losses for investors, wipe out some property developers — such as the unravelling of Austrian property owner Signa — and lead to forced sales in the already struggling office market. In December, Signa’s insolvency administrator put the company’s ownership of half of New York’s Chrysler Building up for sale in order to raise urgently needed cash…
Last month developer Aby Rosen secured a deal for New York’s iconic Seagram building, which stands set back from Park Avenue 10 blocks north of Grand Central station, following months of negotiations and after the $760mn of mortgage debt on the building had already been extended once. About two-thirds of the soon-to-be due mortgages are held by banks. Delinquencies on those loans — which tend to be backed by higher-quality or lower-leveraged buildings — are rising, but are still very low. Data from the Federal Deposit Insurance Corporation shows it remained at a rate of just 1.5 per cent at the end of the third quarter. Despite the low default rates, losses on those loans could be significant. In December, a group of US economists found that 40 per cent of office loans on bank balance sheets were under water, potentially causing problem for dozens of regional banks holding them. … The rest of the expiring loans on office properties are funded with commercial mortgaged backed securities (CMBS), a type of bond that typically pays more than government debt or similarly rated corporate bonds and are held by insurance companies, pension funds and individual investors. There are now roughly $800bn in CMBS in the US. Delinquencies on office loans financed by CMBS topped 6 per cent at the end of November, up from 1.7 per cent a year earlier, according to real estate data firm Trepp. … Of the 605 buildings with mortgages expiring soon, there are 224 that Moody’s Analytics estimates owners will have trouble refinancing this year, either because the properties carry too much debt or because their rental performance is poor. The former Sears Tower in Chicago, the tallest building in the world for more than two decades after its completion in 1974, is one of those on the list. Now known as the Willis Tower, there is $1.3bn in debt secured against the building due in March. Its recent annual income before interest payments was 7 per cent of its debt. Moody’s predicts that, in light of higher interest rates, owners of buildings not generating at least 9 per cent of their debt in annual income will have trouble refinancing this year…
The Seagram building generated $56mn in net operating income in 2012, the year before it refinanced into its current loan. Yet when its lenders underwrote the $760mn mortgage the following year, they estimated the building could bring 30 per cent more a year, or $74mn in annual revenue. It never has. Profit before interest payments and renovations peaked in 2018 at $69mn, and have fallen since, hitting a low of $27mn in 2022… the $54mn in earnings before interest and renovations it was on track to generate for 2023 is about the same amount as in 2012.
Source: FT
A striking contrast
Compare two reports from the same pink pages of the FT, and contrast the fortunes of US-European and Chinese renewable energy projects. First, the West:
Spanish renewables group Iberdrola has called off its planned $8bn acquisition of PNM Resources, cancelling a deal that would have transformed its Avangrid subsidiary into one of the biggest companies in the US utilities sector. Avangrid said on Tuesday it was exercising a right to terminate the deal because it had been rejected by one regulator in New Mexico in 2021 and the company was still bogged down in appealing against the decision in the courts. Scrapping the agreement will force a rethink of Iberdrola’s plans in the US, where the transaction would have made Avangrid the third-biggest renewable energy company in the country. The Spanish group has a presence in more than a dozen countries but has made the US its principal investment target. New Mexico’s Public Regulation Commission had rejected the $8.3bn deal, where the Spanish group agreed to pay $4.3bn in cash and debt, partly due to concerns over “quality of service issues” at Avangrid. It also cited the fact that Ignacio Galán, Iberdrola’s chair, had been placed under criminal investigation as part of a probe into ties between Spanish companies and a former police officer involved in a series of high-profile scandals. A Spanish court closed the investigation into Galán in June 2022 and the company has denied any wrongdoing.
Source: FT
Now, the East:
China’s SOEs are a core pillar of the world’s second-biggest economy, accounting for 66 per cent of gross domestic product in 2023, Tsinghua University public policy experts Zhang Fang and Zuo Jialu wrote in February. And in energy, size matters. The SOEs have the resources and backing to develop at scale China’s best wind and solar resources in the remote north-west, areas where smaller private sector groups have struggled to operate. Another feature of Chinese policymaking is that leaders’ publicly stated targets are seldom missed. The investment drive in renewable energy, coupled with China’s rapid transport electrification, means many international experts now forecast that China’s emissions peak will probably occur sooner than 2030. And the implications of this green turn by China’s SOEs go beyond the high-level climate targets. Whereas once the groups were known for being deeply conservative, they are investing more in new, unproven technology, including start-ups. “They are actually on the edge of trying out new technologies and putting those into commercial use,” said Yicong Zhu, senior renewables and power analyst at Rystad Energy. This is boosting private sector research and development efforts at a time of capital market weakness, and means that China is well placed to extend its global lead across key clean technologies. In one example cited by CEF, the China State Shipbuilding Corporation is developing the largest prototype offshore wind turbine in the world, with the rotor 260 metres high and powering about 40,000 households.
Source: FT
Ten conflicts to watch in 2024 - a full briefing
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Tony Swain, Too-Valued Blue, 2007.
The chip wars
Regular readers will know I have highlighted American hostility to Chinese semiconductor production as a site of tensions heralding our emerging multipolar world and the old hegemon’s anxieties about it.
ASML Holding NV canceled shipments of some of its machines to China at the request of US President Joe Biden’s administration, weeks before export bans on the high-end chipmaking equipment came into effect, people familiar with the matter said.
The Dutch manufacturer had licenses to ship three top-of-the-line deep ultraviolet lithography machines to Chinese firms until January when new Dutch restrictions take full effect. However, US officials reached out to ASML to ask them to immediately halt pre-scheduled shipments of some of the machines to Chinese customers, according to people familiar with the matter, who asked not to be identified because the discussions were confidential.
Between July and November, China’s imports of lithography machines surged more than five times to $3.7 billion, according to Chinese customs data. China accounted for nearly half of ASML’s sales in the third quarter — compared with 24% in the previous quarter and 8% in the three months ending in March — as companies there rushed to import its machines before export controls take effect.
The new curbs will affect as much as 15% of the firm’s sales in China.
Source: Bloomberg
Somalia enters the fray - trouble in east Africa
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Volcano and revolution
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Libertarians - a sharp political take-down
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The Party is over - a marvellous James Baldwin clip
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