Peeling Back the Onion of Capital Markets and Cold Storage Development
Originally published on September 13, 2023 by Kathryn Hamilton, CAE for NAIOP.
“Less than 2% of industrial space today is cold storage, and it probably needs to be at 15%. We’re not even in the first inning,” opened economist KC Conway in a keynote session at NAIOP’s I.CON Cold Storage conference this week in Atlanta.
Using the analogy of peeling back an onion, Conway identified four cold storage and capital markets “layers” to “see what makes us sweat and what makes us cry.”
Layer 1: Federal Open Market Committee (FOMC) Policy. It’s getting harder to refinance out of existing debt, and the Federal Reserve (Fed) hasn’t yet addressed this, he said. There is $1.5 trillion in commercial real estate lending that needs to be refinanced – a significant portion of a $17 trillion industry. And this time, Conway noted, CRE isn’t to blame for overbuilding. Instead, it’s the Fed that has created a capital lockup and made it difficult for CRE to do projections and figure out financing. In the last 18 months, Conway said, we’ve seen the highest, fastest and steepest increases in interest rates in the history of the central bank. Companies and industries with fixed debt are going to see refinancing rates jump from 3-4% to 8-9%.
Two-thirds of that debt is held by community and regional banks, and their exposure is even bigger than commonly reported. “These banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending,” he said.