![]() ![]() Real estate is the most shorted industry globally and the third most in the United States, according to S&P Global. Recently, short-sellers have stepped up their bets against commercial landlords, indicating that they think the market will continue to fall as regional banks limit access to credit. “And I do think that is going to be something that will be important to watch over the coming months and quarters.” “I do think you will see banks pull back on commercial real estate commitments more rapidly in a world they’re more focused on liquidity,” wrote Goldman Sachs Research’s Richard Ramsden in a note on Friday. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists. Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe. Recent banking stress will likely add to those woes. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. This is especially critical in today’s macro-economic climate with high interest rates, increasing supply costs, and decreasing demand.Economists are growing concerned about the $20 trillion commercial real estate (CRE) industry.Īfter decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall. Improving Cash Flowįree cash flow is cash generated by a business after all operating expenses (including operating capital costs) are paid. Free cash flow is important because it enables companies to ensure it can efficiently run operations, pay its debts, invest in the business (for example, via stock buy backs), and capitalize on growth opportunities (like M&A) without the need to raise capital. In the medium term, further value will be released from working capital improvement through the reduction in excess stocks by decreasing lead time deviation, reduction of slow and obsolete ( SLOB) inventory and through the reduction in invoicing days. In the short term, the value will be generated from operational efficiencies such as a reduction in manual interactions, improved distribution planning and improved warehouse operations as well as cost reduction in the areas of detention and demurrage (D&D), expedite costs and carrier detention. ![]() Visibility platforms align very well to this thinking as they generate value quickly without absorbing large amounts of cash. ![]() This new style of budgeting will encourage supply chain driven businesses to only invest in technology solutions that generate value quickly, improve profit margins, cash flow and support new business models. This will improve profit margins which positively impact free cash flow.ĬFOs can be expected to ask their organizations in 2023 to optimize and maximize cash across the enterprise. As economies around the world see limited and even negative growth, companies are forced to double down on efficiencies that can drive down costs. What will be different from a year ago due to socio-economic and geo-political issues, is that the focus in 2023 will be on cost savings and cash flow. When this scenario occurs across multiple products simultaneously, it doesn’t take a finance major to understand that this results in a cash flow crunch. Considering most stores take 60 to 90 days to go from purchase order to stock on their shelves, you would have to wait a long time before you see any return from these items. Once you pay for products and shipping services, your free cash takes a hit and the capital remains trapped until you can sell these goods. With products stuck at ports, in warehouses or in-transit over the road, the gap between purchasing inventory and selling it is widening and growing more expensive by the second. Sellers of all shapes and sizes are reporting reduced margins and cash flow due to increasing pressure on the supply chain. 2023 will continue to throw more challenges and disruptions to an already weakened supply chain. ![]()
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