CR, without any strong opinion either way, I ask why wouldn't the CRE bust be as bad or worse?
Seems that every bit of pain that homeowners feel from the CRE bust might (should?) translate into pain for businesses due to decreased demand...
And from what I read, CRE lending was foolish and short-sighted just like residential.
Also, some of the factors that make home prices sticky (folks need to live somewhere, and some have equity or emotional attachments to their homes) are lacking for businesses.
I'm currently short or have in the money
2009 puts with VNO, BXP, and SPG.
Made some good green with puts/shorting
on CFC, DSL, LEND, and most of the
builders. Mostly finished with that
side though.
I think VNO, BXP and SPG can easily
drop into the 30's within a year or so.
Looking for more ideas on shorting
CRE, specific banks etc.
I don't think the CRE bust will be as bad as the residential bust.
Why? Because there wasn't loose lend? Easy credit? Overbuilding? Oh, I know why the bust won't be as bad; it is because the people in CRE have a sense of moral obligation and will stick with a deal even if it costs them money unlike those ruthless residential specuvestors.
I think CRE will be worse than RRE because I see far more overbuilding and worse the wrong kinds of building in the wrong places. For but one instance the Walmart and Home Depot strategies of saturation coverage such that competitors can gain no geographic advantage. The leaves them with huge overlapping cachement areas. Home Depot has 3 stores Oxnard, Camarillo and Thousand Oaks along a 20 mile stretch of freeway. But that's not all. Both the Oxnard and T.O. stores are "RELOS" meaning relocated stores. The previous locations are held off the market empty. The Oxnard store for 8 or more years.
Believe it or not, my first comment was not intended to spark a discussion of investment ideas. I'm just curious how widespread the credit crisis really is, once the coming CRE and LBO loan problems start to be known. Right now there are some banks (like Wells and BofA) that have been relatively lightly punished, and I'm not believing their strength.
In places like Florida, CRE bust will be much worse than RRE. My prediction (in 2005 on this blog, if my memory serves me well) was 70-80% off within ~5 years (from 04-05 prices). RRE was crazy, but CRE was insane. I don`t want to get into details, but a lot of hedge funds got involved in CRE game without knowing anything about it. And in this game, ignorance is not bliss, is a disaster.
A friend of mine has a commercial construction company and I asked him last night how business was. He used to bid 14 or 15 jobs a week, he's down to 1 or 2. He has about 3 to 4 months of work left.
Another friend is a commercial realtor and he says things are getting bad.
CR:
you sure opened up a can of worms... that said, I'm glad that readers are willing to challenge your unsupported statements (that said, I'm sure you've supported this claim in a previous thread!!)
I tend to agree with your statement, but only IF there is no recession.
if a recession hits all bets are off IMO. either that, or it won't matter if CRE isn't as bad as RRE because they'll both be dead...
Wife: Sheriff, how's my husband?
Sheriff: Well, ma'am, he didn't do as badly as the people in the other car
Wife: then can I see him?
Sheriff: unfortunately, he passed away
Wife/widow: What do you mean?! You said he wasn't as bad as the other car
Sheriff: you should see what happened to the people in that other car!
1.) Banks already weak
2.) Banks most affected are smaller
3.) Won't get any bailout (all the money will be spent on "homeowners". By the time there is a CRE crisis, even Congress won't be able to find enough debt to cover another bailout).
4.) CRE losses will mount more quickly as:
a.) Firms are less sentimental than families. They will "walk away" without any qualms.
b.) Value of loans is directly tied to sales, which are themselves weakening rapidly (Home owners may be able to continue to pay even if they are upside down as long as they are still employed. Retailers will ruthlessly close outlets that are not making money.)
In the end, whether worse or not, this is piling on. It is the accumulated effect of interdependent problems that will ultimately bring on a hard recession.
In Sonooma county the retail category I see as insanely overbuilt is home improvement big box stores.We have Lowe's,friedman's and two Home Depots in the santa rosa/rohnert park corridor.easily 3x what would be required in a healthy economy.My hope is that one of them will be turned into an indoor shooting range,you could have 200,100 and 50 yard rifle, 50 and 25 yard pistol ranges,and indoor trap as well...
For those of you in the bay area who think commercial real estate is not extremely over build, try driving around 101 and Matilda. 4 giant buildings on that corner, at lest 2 more in the distance, and I know 4 other sizable building in construction within 1 mile radius.
Other facts:
-In that neighborhood, Motorola and Yahoo are cutting back substantially.
-every large company I know in the bay area has a hiring freeze (software, hardware, semi, consulting)
-Venture money is still strong, but lots of money is going to web companies with small size using outsourced labor from East Europe and Asia
True, true what you say about the Bay Area. Add to that the fact that there are lots of RE-related zombie businesses waiting for the hoped-for turnaround in residential transactions.
Coupla points here. Pls read in the context of a variety of comm loans, land bank, construction, not just mortgages.
(a) Many comm real estate loans are nonrecourse and not all of those have guarantees by the sponsors. Easier to jingle mail when you dont take a hit.
(b) Many comm real estate loans are very short term, or have very short term 2nds (usually hard money), and lack of rollover ability can kill fast.
(c) The value of raw land for vertical /horizontal development is overwhelmingly based on the absorption rate. An equity investor looking for a 25% return (common) in a leveraged deal is now faced with two to four years more absorption on retail and office space because of the dead housing market ("if you build it they will come" doesnt work if theres no housing to draw from). mathematically this can result in a drop in NPV estimate of commercial land by up to 50%, depending on leverage rations. Highly sensitive partial derivative with respect to absorption rate to to very high required IRR on the (nonleveraged) equity.
So the concepts bet residential and general comm real estate debt don't hold except in the special case of fixed rate mortgages on high cap rate buildings.
Even there, inflation and corresponding yield curve rises at and after the 5 year, and higher spreads and risk premia, will reduce the valuation of comm rental property with existing leases that have 10 years to run.
Also agree with the Bay Area comments although I wish that they would relocate some of those big box stores in Sonoma down to Marin or San Francisco. (That's not going to happen though.) Interesting article in Slate by Daniel Gross (Why America has too many stores. - By Daniel Gross - Slate Magazine about the glut of stores in the US. He includes a typical Slate anti-consumer society spin - but also makes the quantitative case that retail is overbuilt.
Forgot to add that for dealer projects (not investment projects), abandoning one at a loss would generate a net operating loss which could be carried back as well as forward and is worth a significant tax benefit, unlike residential.
Again, it can be easier and more rational to just abandon a comm real estate project at a loss.
Vacancy rates 2-4X of residential, already. And, the economic weakening has just started.
CRE strikes me as 'bigger beta' -- lots of discretionary, commercial use that will not be supported in the upcoming depression -- than residential. I think it is going to be horrendous in CRE (as it will be in residential).
Even if retail and office are not overbuilt, the cap rates are extremely low. A new strip center close to me containing the usual suspects (JCP BBY etc.) was packaged and sold to a European pension plan on a 3.7% cap rate assuming 95% occupancy.
I have no idea what the developer took out but it must have been plenty. I know for a fact they overpaid for some of the land because I sold it to them.
Fred - great point on the absorption rate and its impact on the equity rate of return. Your final point about CRE being horrible or not - how do you see this outcome not being bad?
Ross - thanks for the example. So a developer can still overpay and flip the property for a 3.7% cap rate. Why would a European entity want a US investment with a 3.7% rate of return (that may be optimistic)? What do these buyers see that most of us don't?
I have a client who's a partner in what is now a $65M project that a year ago was a $90M project because of exactly this.
It's already bad.
If I sounded like I thought it might be ok, I wrote sloppily.
CMBS on AAA flags should be OK I gues.
But in general if I were in CRE I'd be in it as a workout specialist or broker/dealer (securities, not land) to bring in new money to near-BK projects.
I meant to say it could be horrible or it could just be bad.
Re EURO investors: What's even funnier is that US institutional investors (think CALPERS and the like) are going to Turkey, India, etc looking for deals cause it's all picked over here and the easy money already made.
Most CRE is done by regionals I suggest you google around looking for reports from the OCC.
OCC has announced a campaign of investigating regionals with heavy CRE (I think more than 3:1 ratio) to inspect and insure the docs are in order, the appraisals are current, etc.
Arlo,
I suspect the buyers were shown a model of future potential capital gains since we all know real estate only goes up. Given enough inflation, they might be right. And in the long run we're all dead anyway.
Many comm real estate loans are very short term, or have very short term 2nds (usually hard money), and lack of rollover ability can kill fast.
I'm with CR on the severity of the CRE downturn unless fred's point above becomes a huge driver. This could spiral out of control. Everything is wound tight. If sh#t really hits the fan Roubini is going to look like a genius....
I have no dog in this fight financially other than my work, but I can tell you personally that very large, public big empty box builders are canceling acquisition contracts still in due dilly simply because they see no need to hurry and wind up lugging inventory.
Purely anecdotal and regional, but true.
Leverage is now the enemy and IMO only the high cash position players who can afford a multi year carry can be in the game, the rest wash out.
I forget which it was, but who just sold a nine-figure project to a joint venture with an IB because they can't service the debt?
Focus, I think, 2nd largest landholder in LV, announced they cannot service their debt for above reasons in my prior posts and are in restructuring talks with their lenders.
Maybe CRE isn't as overbuilt as residential based on current use, but there are at least two things about CRE that make it potentially worse than residential:
When people move out of a house or a condo they have to move someplace else, so the market continues to be supported at some cheaper level (smaller space, more people per unit or whatever). By contrast, businesses that can't make money just vanish.
The value of CRE to an investor (or a bank backing an investor) is completely driven by the return. If capital is scarce and cap rates go from 4% to 8%, the value of the property just dropped by 50%. I think that is a done deal already in many parts of the country. The current rents may allow the owners to keep making payments for a while, but there is no way the property can change hands at anywhere near the loan value. And if there is even a marginal increase in vacancies the math gets worse fast.
Assume to a first order that for the short term the US population is a constant and that everyone needs one residence. That means that every currently occupied "home" will stay occupied and every unoccupied/second home will stay "empty." Absent net new construction, the residential excess is a constant.
OTOH, the demand for commercial space is much more elastic, extremely dependent on the economy. If the economy tanks, then the commercial vacancy rate should explode. I guess that's why commercial rents fluctuate so much more than residential rents.
ac -- all out collapse, no bailouts possible -- seems inevitable to me.
We are already running $200 billion plus federal deficits;
We risk seeing rising long-term interest rates on Treasury debt, if inflation expectations --> premium keeps moving north;
And, federal collections have now begun falling (see Jan. year-over-year): http://www.fms.treas.gov/mts/mts0108.pdf
If the federal tax collections keep falling year-over-year, we will rapidly lose (yeah!) the ability to contemplate massive bailouts.
Here in the Washington D.C. area, although the slowdown has hit, most assume the presence of the federal government will cushion the fall.
A Washington Post metro section article day had some sobering numbers though.
"Richard Clinch, a researcher at the University of Baltimore, said that from 2001-2006 as much as half the job growth in the metropolitan Washington area was linked to the soaring real estate market. Many of those workers are "hidden" in jobs not widely thought of as linked to home sales, he said. The chain of workers involved in real estate deals has grown over the years, largely because of the amount of money at stake. "
A second researcher is quoted as saying hundreds of thousands of jobs in the area are being impacted. Many of the examples given are of people who have not been laid off, but who see their amount of work and income falling by as much as 40-60%. Everyone from plumbers, to termite inspectors, to gift basket purveyors.
As that works it way through, it seems bound to impact CRE as part of a negative spiral.
Finally, I can't help noting a pet peeve. In recounting the problems faced by a women who researches titles (and has seen work drop off sharply), it notes that "she refinanced twice, exchanging some of the equity for cash."
To be accurate I think that selling a house exchanges equity for cash, while cash out refis exchange equity for debt. Sigh.
Rob, thanks for posting that study of retail space growth. You would have thought retail growth would slow with the blast off of e-commerce over the last decade. But not so. Now, with permanent $3+ gas, it looks like even more commerce will be shifting on line. So, there's way too much retail space out there.
Also, what's that with 10 of the top 11 most retailed metros being in Ohio? Didn't they get the news about the Rust Belt?
A thought about the different likely trajectories of residential and commercial property prices--I'm not sure what it means to say one will be worse than the other.
It seems to me that the price discovery process will progress and two different rates, and I would suspect that the prices of commercial real estate will adjust far more quickly than those of residential properties.
If so, what looks like greater volatility in the commercial market will be better understand in the context of differing time frames of the two processes. Residential home owners and potential purchasers, who are influenced by a wide variety of non-economic factors may rationally (in light of all the considerations influencing them) defer or move more slowly towards an equilibrium price than will commercial investors, lenders and occupants (who should be a bit more purely economic in their decision making).
We are hearing a great deal about the dimension of volatility that is reflected in the size (whether absolute or relative) of price swings, and much less about the time frame of the price discovery process. To put it in terms near and dear to me, the amplitude of the wave is being emphasized at the expense of its period.
albrt,
You are exactly right. My sense is that a majority of the posters here don't understand or underestimate how low cap rates have been, and how quickly prices will adjest to the downside once cap rates return closer to historical standards (which are closer to 10%). If you bought within the last five years or so, the value of your property will plummet (notwithstanding rising vacancy during the impending severe recession/depression). Moreover, this fact will be worsed by the huge overbuilding wave that is just ending. All real estate will be crushed, not just residential.
I know nothing about CRE but I noted in my small midwestern town of 10,000 people in the last three years: 3 new retail auto parts dealers, 3 new pharmacies all within 5 blocks. Geez I thought how does that work?? Answer it probably doesn't. And that is all within a State that has had a very bad economy for several years......
I don't know any offhand, but you could check any of the commercial real estate brokerage sites for info. Cushman Wakefiedl, Grubb & Ellis, Trammel Crow, etc...or things like Loopnet.
By the way, I meant to say that if you bought within the last 5 years, you will soon be underwater. All property owners will see values decrease.
I have to disagree with CR also, I think CRE will be equally as bad or worse than RRE.
The extremely low cap rates (I think Ross mentioned a 3.7% deal, and I have seen some as low as 2%) and assumptions (95% occupancy) will prove fantasy. With more equity from purchasers being required by lenders, values will have to go down to provide an adequate yield to buyers.
The revenue side can change very quickly. For example, look how much space was vacated very quickly by the subprime lenders, especially in Orange County CA. When service companies can't grow the top line, they start the shared office concepts with staff (if all the offices are occupied, work at home. Employees will seize these opportunities to save on gasoline expense.) This leads to businesses trying to release some of their empty space and this can come back on the market just as fast as residential foreclosures and at typically lower than market lease rates.
K-, thanks for the link to the Chicago schools article.
Here in San Diego, we are building multimillion dollar bus lanes on highways and lightrail lines to nowhere. That, just as we are experiencing an exodus of nativeborn folks and, now, illegals.
Traffic is clearly getting lighter. In fact, some days it is near spooky how light the evening traffic on IH5 south is.
in my practice (quantitative tax law, often in real estate structures), i have pleaded on my knees (till i broke one) to every client PUHLEEZE let me show you how to hedge cap rate exposure...
although an imperfect hedge, really you can do this with interest rate derivs, even with exchange traded stuff...
We lived in Sacramento back in '99-'00. The best school in town was private (Brookfield). The school spent its money on great teachers, and had a so-so facility. That was because the facility was rented: M-F, school took place, and on weekends, the place reverted to what it was built for, a synagogue.
We parents were quite happy to pay big money and get our kids a great education at a place with mediocre aesthetics and facilities.
I see these new multimillion dollar schools, fire stations, and courthouses, and say to myself that the government crash cannot come quick enough.
OT- $7.00 gas=Depression..Driving down 15 thru inland empire to Temecula..Empty CRE everywhere...Sister owes 400K, owner down street just listed 250K..Same house and she didn't refi or pull money out..
CRE will be worse but less exposed by the media..Out of site out of mind...
Had dinner in Irvine with 2 realtors working for Builder-Standard Pacific..
They both thought stimulus plan with FHA and adjusted limits will bring market back this year..Didn't want to ruin the mood, So I kept sippin beer...
What you state is the exact reason why historical CRE 10-CAP's are a thing of the past. The banking system cannot handle a return of historical values in either CRE or RRE.
And if they did revert back to their historical means, the System would either fail or we would be in a Great Depression. The Fed and the Central Banks clearly understand this.
I drive through industrial parks and commercial centers here in SoCal and almost every one of them has a for lease or sale sign. Projects under construction all are looking for tenants or to sell. New businesses closing at a steady pace. It is getting creepy. Large big box sites sit empty for years after closing. Right in the middle of prime traffic areas. Sure it is regional, but this region accounts for 5% of the US population.
All, I think it's a good discussion about CRE vs. residential. There were many silly loans made in CRE, but so I don't think CRE was as overbuilt as residential.
I've covered this before with graphs - but basically RI as a percent of GDP was at an all time high. CRE as a percent of GDP was somewhat above normal.
picosec, are you kidding me! This is the old "they don't make any more land" load of crap. Let me tell you that they do make more land. My grandfather owned the first high rise apartment building in northern New Jersey and during the depression when the population was growing leaps and bounds, the occupancy dropped from approximately 94% to 40% in short order. How did it happen since they stopped building. He told me that the sons and daughters, their spouses and everone that was related moved into spare berooms with their parents to conserve cash. My grandfather went broke, started drinking and it eventually killed him. Don't tell me residential is stable.
I forgot to mention that I know one of the attorneys at Cad who was fired and who did commercial mortgage backed -- so you got to imaging that these might be in trouble too.
Quincy k,
Yes, you are right. It will be another depression.
CR, You are right. Residential wasn't as overbuilt as CRE. But, the values were every bit as inflated, so they will both see big price drops with commercial likely recovering quicker (assuming jobs come back).
ac, barring a serious weather or geopolitical event affecting oil supply, I doubt we'll see $7 gas this year. We will probably see $4 gas by end of May, unless oil goes back below $80/gallon. The reason is the refineries can't produce for summer time demand without a higher crack spread (their net profit amount per barrel). The reason for that is refinery utilization rates higher than 86-87% drives up costs (overtime, wear'n tear etc). Gas would have to rise to about $4 given where oil is right now.
However, this year, overall oil supply is not likely to erode dramatically, and might even tick up over 2007 levels. So, I don't think we'll see $7 gas this year. Maybe 2009. 2010 at the latest.
I agree with the point made above by Rob Dawg that CRE and especially retail has expanded for a very long time at way too high a rate to be sustainable (1982 to now). All during this time the consumer did not budge because of the consistent credit expansion. That is at an end now.
The telling story is not the absolute high of the graph but the accumulated CRE inventory over this period of credit expansion which will now catch up with its investors as the consumer is failing for the first time in this period.
The system better start to cope again with cap rates of 8% to 10% and what that will mean is obvious to all of us.
I know in Indianapolis they just had a Cabela's bail. One day the bulldozers were clearing the site, the next they were gone. The company has postponed completion for the foreseeable future. Best of all that was the anchor store for a big development project. Last I heard they had several other planned CRE projects in the area reevaluating whether to go forward.
the issue is not how high above some arbitrary fair value CRE is, but to what degree is it negatively sensitive to changes about to happen, in such things as cap rates.
there would seem to be more of a natural bid under housing prices (albeit way below where they are now) than under CRE, as no one HAS to open a store on that lot.
Elvis' comment -- '...the (CRE) values were every bit as inflated (as residential), so they will both see big price drops...' -- makes great sense to me.
This may be an example of such: a local fellow paying $100 million for a 115 room hotel. When I make plausible assumptions about room rental rates and profit margins, I arrive at a 1-2% return.
ac, barring a serious weather or geopolitical event affecting oil supply, I doubt we'll see $7 gas this year. We will probably see $4 gas by end of May, unless oil goes back below $80/gallon...
I think if speculators can get the storage space and continued cooperation from central bankers, there's no limit to how high the price of gas and other commodities will go.
You have to take the money out of the hands of Wall Street savages for it to stop.
Not sure if there will be a CRE bust, to be honest. Slowdown, yes. There is no oversupply, and thanks to the credit crunch, lenders are far more disciplined and have tightened underwriting standard. The NPL portfolio mentioned in the article consists mostly of loans in Florida, most likely secured by condo projects.
In January, First Industrial Realty Trust formed a 10-year joint venture with the California State Teachers' Retirement System to invest $475 million in industrial land and buildings in overseas markets. CalSTRS is contributing $150 million in the venture and First Industrial has a $17 million equity stake. Source: Institutional investers pushing more capital into commercial real estate
The same article says: CalPERS announced in December it would pour an additional $5.2 billion into its $19.8 billion real estate portfolio, a 2% increase over its 2007 commitment level. Combined with other new alternative investment strategies, CalPERS expects its new asset mix to return 9.06% in 2008, up from 8.92% in 2007.
Other reports have those investments going overseas as well.
so much for investing in California with the multiplier effects. If you knew CalPERS and CALSTRS were not interested in California CRE how would that affect your view of the State as an investment locale? Worse these organizations are using tax dollars to drain liquidity from the State to pursue higher yields. Effin brilliant.
OT -- I thought that Banker said that Golden Schmucks was isolated from the credit bubble mess.
Maybe not: "...The firm's leveraged-loan exposure is equivalent to 1.1 times its net worth, versus an average of 0.7 times for U.S. brokerage firms..."
An assumption of 95% occupancy? and 2% Cap rates.....I smoked some good shit when I was young,but I stayed away from PCP and Cheap Vodka.A 2% cap rate !!!???By definition half the populace has an iq under 100,but these folks are special.
Based on my assessment, all product types have been affected but especially hard hit is the industrial-office-flex market.
And taking a look at the Charge-Off and Delinquency Rates from the FRB Statistics, plotting the quarterly data for the YoY rate of change for Commercial Real Estate Loans you will see an unbroken ramp from 1Q2006...
The point being that it makes it challenging (for me) to be sanguine about the prospects for CRE and the pain will be limited to condo projects in Florida.
i've seen a number of downtown jacksonville CRE buildings show up in the foreclosure listings already...they started to build that area up prior to the superbowl a few years back, it's still pretty ghetto though...
i've seen a strip mall near where i work that's had a few lots open for years literally...citibank moved to a new building probably about 2 years ago, they used to lease the buildings near where my company currently does...guess i'd echo the sentiment that CRE in florida could get ugly too...
that said, my realtor showed me that we're at about 20.3 months supply on RRE...ewwwwwwwwwwwwww!
I am of the opinion that CRE is certainly heading down but it won't be as bad as RRE. Why? The incentive to furnish fraudulent data was not as obvious as it was with RRE. NOI numbers could be faked like stated income was for liar's loans (although one borrower, LeNature, managed to get away with it before folding). Also, there were few "silent seconds". CRE LTVs, albeit based on inflated appraisals, were almost always at 80% or below. There was only so much silly money being lent, so CRE values could not have become as inflated as RRE.
As Rob notes, you can't judge the downside of CRE by comparing boom level overinvestment to RRE. Instead, you have to look at credit, consumption, savings, etc. all reverting back to pre-Greenspan levels. Not absolute levels, mind you, but relative. CRE is a bubble that was building for 20 years, not 5.
NEW YORK (AP) -- As the economy cools, companies are starting to shrink their travel budgets -- a move likely to put further strain on struggling airlines.
Hotels, car-rental agencies and restaurants, which along with airlines employ roughly 4 percent of U.S. workers, will also feel the pinch.
Went for a job in far suburban Virginia (Loudoun/Prince William Counties), today.
Lots of empty office/mixed use/campus style developments, with plenty more in the pipeline (everything from development of raw land to almost finished). This does not bode well for the future.
There were also tons of new residential - everything from luxury SFHs to 4-story (limit of wood-framed structures), also in every stage of development. Plenty of those sitting empty for more than a year, also. The top end was over-represented. Although we didn't stop and look inside the homes, I had the impression that there were plenty of granite countertops.
As these homes are not within an easy/reasonable/affordable commute to employment centers, and as the land they are on is more suitable to farming, and as they only add to the oversaturation of this product type in a market which cannot afford them, I have a feeling they will not fulfill their actuarial useful life span estimates.
Yes you can because the same players were involved. If Countrywide was willing to lend money to stiffs for residential purchases, then it follows that the loans they made in the commercial space were equally enthusiastic. MLCFC bondholders, watch out.
I'm not sure what you are disagreeing with. Yes, loose money was everywhere, and that'll hit CRE just like it as RRE. The point that I (and Rob before me) was making was that focusing on bad lending ignores the fact that CRE has been overbuilt for decades due to our over-consuming society.
purely anectdotal, i know, but my town in west RivCo CA went built crazy at the tail end of this whole thing. The unfinished housing tracts quit seeing activity 5 months ago. the minimalls and tiltups all finished building - but only the anchor shops opened in most of them. think gigantic Rite-Aid all alone in an empty parking lot.
IMHO I still see little chance of a bailout. It's an election year, the numbers are too big, and the obvious beneficiaries are not sympathetic. Besides, where do you find the money?
It's all BS anyway... all these proposals do nothing for J6P, and he's the one that's tapped out. Any bailout would take money away from J6P towards one or more special interests. As long as J6P is tapped out, everything else is moot.
Chief Accountant at GAO resigns...."I have been around a very long time, and I have never seen so many simultaneous challenges that I would describe as undeniable, unsustainable and virtually untouchable politically," Peterson said in a prepared statement.
I believe Rob Dawg, and especially Fred for pointing out some of the problems in CRE.
I think the reason so many people are likely to be 'surpised on the downside', including CR... is their models are just based on linear assumptions. Even vaunted Fed Chair Volcker made these mistakes... thinking for example that money velocity wouldn't change substantially as he jacked rates to the moon.
Well, we know how that turned out.
In a few months, "Surpised on the downside" should make an appearance on the top ten lists.
At 40 sq ft per person, why can't we just move into the malls and create arcologies already? Save time, gas, and all that and just live in the store - the ultimate consumers!
homedad, that big bailout will be tough to pay, won't it? How about defaulting on some of the new $1T of govt bonds through a little inflation? I think you can see what is likely to happen.
Those looking to short CRE I would advise consider shorting Newcastle (NCT), which a huge and highly-leveraged portfolio of CMBS. I shorted the stock mid last year, and it has been a very profitable investment so far.
The stock, like several other financial companies that have made bad RE investments, is a bit hard to short. E-Trade no longer has shares available to short, so I opened an account with Scottrade, which does have shares to short as of last week.
In Austin, TX (post 2000 dotcom bubble) CRE was more visibly hit than RRE since they stopped projects on a dime (many skeleton or "naked" structures were around for years and were eye sores -- google will probably dig up few examples esp. the Intel building). I don't recall any "naked" houses since the prices in Austin never got too high during 1999-2001 and didn't drop too low either during 2001-2005 when prices fell.
Here in the O.C. (Huntington Beach) I've noticed recently that almost every strip mall has a for-lease sign. Even where I work, in an office park, there are few buildings around the corner where they look new and empty!
With the current downturn, I have no idea if CRE would be worse than RRE.
When people get poor, they spend less. They don't travel, they don't buy granite countertops, Hummers and assorted usless junk.
They buy food, clothes, medicine and entertainment - and they cut back on everything else.
Most of the CRE debate here has focused on whether it will continue to expand into the vacant, overbuilt space. My question is - how much will it contract?
Can we really support ten times as many drugstores (and banks) as ten years ago? How many of those big boxes are gonna consolidate?
How much retail will survive with the HELOC ATM out of service? How many existing businesses are hanging on by a thread - right now?
There is going to be more retail consolidation before this is finished than anyone suspects now - with high energy prices and the internet driving the final nail into a lot of retail coffins.
Regarding CRE overbuilding and demand. Looks like there is plenty of CRE in the pipeline yet to hit market ;
Commercial Builder Woes: What if Theres No Tenant at the End of the Rainbow?
"Some 145 million square feet of new retail space was built in the top 54 markets last year, with another 123 million square feet in the pipeline this year, according to Property & Portfolio Research. By comparison, the annual average between 2000 and 2006 was 118 million square feet."
Cabela's is an example of a company with a nice niche that became hot and trendy. Instead of saying, "isn't it great that our little niche became trendy for awhile," they played the Wall Street growth game and tried to turn a niche into a mainstream phenomenon.
The ultimate consumer society masquerading on weekends as hunters and gatherers. How stupid.
There's been no such thing as smart conservative, realistic retailers who understand and honor cycles.
Most of the CRE that has been securitized over the past few years was structured with IO (Interest-Only) payments, often a full term (10 year) IO. Also, CRE loans typically have fairly substantial escrows in place to cover shortages. The combination of these 2 features means unless you have an absolute disaster in CRE, which is always possible, I doubt it will be worse than RRE.
I expect you won't see huge defaults or problems until the 2004-2007 vintage of CRE loans comes due for a refinance, several years down the road.
Looking for CRE meltdowns probably won't be a particularly exciting pasttime for another 2-4 years. You'll have some exceptions like Macklowe, but those will be the exception.
donna writes:
At 40 sq ft per person, why can't we just move into the malls and create arcologies already? Save time, gas, and all that and just live in the store - the ultimate consumers!
then to complete the package, turn the Sears brand into Public Storage...nobody shops at sears anyway.
Rr's link above is extremely important. Walker has been the only voice of sanity and intellect at the federal level. Now that's gone. I don't know what political pressure was applied to push him out, but I'm guessing the Treasury's books are going to be cooked beyond belief.
Even if 99% of America wasn't listening, Walker's work was critical as a possible threat to expose corruption and incompetence. Now there's no one left to tell you how much of your money is being stolen.
Shorts take note, the Visa IPO is going to put some more cash onto the bank balance sheets, a lot of the banks were founding members and are going to get a portion of their stakes monetized. The cash will still burn a hole in the pocket of the clueless, but nevertheless postpone their demise. No timing announced yet, but if I were Visa, I would move quickly.
OT, but relevant. I've just watched an Bloomberg interview with Bob Parker, a vice chairman of asset management at Credit Suisse. Another one going on record to say the "rescue" of Ambac will turn sector around. He also claims the banks, in particular, have already reported the worst of their losses related to the subprime debacle.
But an incredible exchange occurs moments later:
Parker: "The key question, however, is are there bad positions elsewhere, whether it be the pension fund industry, insurance, the mutual funds, other investors. I'm sure there are other 'stale' positions, but I don't think it's going to have the impact that the bad debts have had in the banking system."
Interviewer: "A million small writeoffs as opposed ..."
Parker: "Yes, small pockets everywhere."
Interviewer: "Um, which, uh, points to the fact that the banks managed to offload a lot of their subprime debt and sell it .. uh, sell it in various forms."
Cabela's has backed out of plans to build here in Hooksett, NH. after 3+ years of planning and site preparation they say they will hold off till 2010 and reassess the market situation.
My nephew works in the Boston area for a fire sprinkler company with 90+ employees, they have been out straight for the past 5 years with crews working 7 days a week.......now he says they stretch 4 hours of work into 8 and with large layoffs right around the corner.
Yet 2 new Lowe's being built in Manchester NH area. That will make 3 stores within 10 miles of each other.
Way overbuilt. CRE will take a huge hit.
Rob Dawg writes: If you knew CalPERS and CALSTRS were not interested in California CRE how would that affect your view of the State as an investment locale? Worse these organizations are using tax dollars to drain liquidity from the State to pursue higher yields. Effin brilliant.
Rob, you've got this backwards. There's lots to be worried about CalPERS and CalSTRS, but the worry is that their investments fail to perform at their 'expected' lofty rates, and the taxpayer has to step into the breech.
With that in mind, I HOPE they're not investing in California CRE, and are diversifying globally rather than staying overweight in the high-variance, boom/bust Cal economy. I'll trade the loss of the short-term stimulus for long-term stability any day.
I had my staff value 260 properties in many distinct geogrpaphic areas including retail, apartment, mixed use, and office space - all by hand. I have over 2 GB of data, and
I think I have a pretty good handle on the trend here. The subject of my analysis event went so far as to send out a press release and take stabs during the earnings conference call in lieu actually countering my findings.
CRE and CMBS are probably the most underappreciated risks in today's credit markets, next to the junk bonds and leveraged loans. I will reveal what may be a big surprise to many in the leveraged loan junk bond markets soon...
Hey someone else remembers the ugly scar of the Intel building. Now it's owned by the state. What's amazing to me is that 7 years after the dotboom they never managed to fill some of the see-throughs on 880 here in the Bay Area. Luckily, they make for beautiful contrast in the sunset.
As the bust began I made the comment, "Those sure would burn nice", as we were picking tomatoes near Santana Row , we got some pretty 'hot' news coverage... 6 Months later the local police didn't want the FBI "interfering" in their "investigation". Ahhh that's the way the CRE crumbles.
But today the radio told me "The National Association or Realtors wants you to know that the commercial real estate market is still fundamentally sound!"
I know this thread is long dead, but just in case you take a peak... Here's an excerpt from an interesting article from Prudent Bear (written by John Rubino titled "After Denial Comes Accomodation"):
Most commercial lenders and property owners dont agree, but commercial real estate is likely headed for a worse downturn than housing. After all, a subprime borrower living a house will typically do whatever she can to keep the house. The scoundrels I know in commercial real estate will send the keys back in a heartbeat. So once the downturn starts, commercial real estate will be marked to market brutally and efficiently. The only winner will be the foreclosure and bankruptcy attorneys.
Any idea which banks stand to suffer the worst from a CRE bust?
For those of you who believe that HaloScan is eating your comments, check out today's Garfield comic strip.
CR, without any strong opinion either way, I ask why wouldn't the CRE bust be as bad or worse?
Seems that every bit of pain that homeowners feel from the CRE bust might (should?) translate into pain for businesses due to decreased demand...
And from what I read, CRE lending was foolish and short-sighted just like residential.
Also, some of the factors that make home prices sticky (folks need to live somewhere, and some have equity or emotional attachments to their homes) are lacking for businesses.
CR-
"The CRE slowdown is here, but I don't think the CRE bust will be as bad as the residential bust."
I think that statement will prove to be very true, just based on the fraud element, speculative excess, and option arms inherent in residential.
In residential, I fully expect any recovery of significance to be during/after 2012.
I'm currently short or have in the money
2009 puts with VNO, BXP, and SPG.
Made some good green with puts/shorting
on CFC, DSL, LEND, and most of the
builders. Mostly finished with that
side though.
I think VNO, BXP and SPG can easily
drop into the 30's within a year or so.
Looking for more ideas on shorting
CRE, specific banks etc.
I don't think the CRE bust will be as bad as the residential bust.
Why? Because there wasn't loose lend? Easy credit? Overbuilding? Oh, I know why the bust won't be as bad; it is because the people in CRE have a sense of moral obligation and will stick with a deal even if it costs them money unlike those ruthless residential specuvestors.
I think CRE will be worse than RRE because I see far more overbuilding and worse the wrong kinds of building in the wrong places. For but one instance the Walmart and Home Depot strategies of saturation coverage such that competitors can gain no geographic advantage. The leaves them with huge overlapping cachement areas. Home Depot has 3 stores Oxnard, Camarillo and Thousand Oaks along a 20 mile stretch of freeway. But that's not all. Both the Oxnard and T.O. stores are "RELOS" meaning relocated stores. The previous locations are held off the market empty. The Oxnard store for 8 or more years.
Believe it or not, my first comment was not intended to spark a discussion of investment ideas. I'm just curious how widespread the credit crisis really is, once the coming CRE and LBO loan problems start to be known. Right now there are some banks (like Wells and BofA) that have been relatively lightly punished, and I'm not believing their strength.
jpark,
for CRE shorts and other trade ideas, check out http://boombustblog.com/
, some fantatically detailed analysis including CRE (GGP in particular).
In places like Florida, CRE bust will be much worse than RRE. My prediction (in 2005 on this blog, if my memory serves me well) was 70-80% off within ~5 years (from 04-05 prices). RRE was crazy, but CRE was insane. I don`t want to get into details, but a lot of hedge funds got involved in CRE game without knowing anything about it. And in this game, ignorance is not bliss, is a disaster.
Commercial was never overbuilt like residential, speaking generally.
\tCommercial was never overbuilt like residential, speaking generally.
Don't know about that. Remember that recent photolog of empty Central Cali CRE? That's not an isolated phenomenon.
CR, do you have any data to chart regarding square-footage available vs. occupied, historically speaking?
A friend of mine has a commercial construction company and I asked him last night how business was. He used to bid 14 or 15 jobs a week, he's down to 1 or 2. He has about 3 to 4 months of work left.
Another friend is a commercial realtor and he says things are getting bad.
U.S. retail space, as measured in square feet1, grew at about twice the average pace of the U.S. population over the last 35 years (see Table 3-1). By 2004, there was an estimated median of 40.5 square feet per person for total retail spaceincluding freestanding stores, shopping centers, street retail and retail at mixed-use projects among the nations 361 Metropolitan Statistical Areas (MSAs). Source: http://www.icsc.org/srch/rsrch/researchquarterly/current/rr2005122/US%20Retail%20Space.pdf#xml=http://icscsearch.icsc.org/texis/search/pdfhi.txt?query=per+capita&pr=IcscLiveNew&prox=page&rorder=500&rprox=500&rdfreq=500&rwfreq=500&rlead=500&sufs=0&order=r& (PDF file).
So, anyone positing that we are over housed based on anything per capita had better be ready to accept that we are far more over retailed.
CR:
you sure opened up a can of worms... that said, I'm glad that readers are willing to challenge your unsupported statements (that said, I'm sure you've supported this claim in a previous thread!!)
I tend to agree with your statement, but only IF there is no recession.
if a recession hits all bets are off IMO. either that, or it won't matter if CRE isn't as bad as RRE because they'll both be dead...
Wife: Sheriff, how's my husband?
Sheriff: Well, ma'am, he didn't do as badly as the people in the other car
Wife: then can I see him?
Sheriff: unfortunately, he passed away
Wife/widow: What do you mean?! You said he wasn't as bad as the other car
Sheriff: you should see what happened to the people in that other car!
FWIW:
I think we're in recession.
Broker | 02.24.08 - 5:44 pm |
I gotta agree with broker on this note.
I don't know about other states but Florida is hosed just as bad or worse than residential...
Chris
1.) Banks already weak
2.) Banks most affected are smaller
3.) Won't get any bailout (all the money will be spent on "homeowners". By the time there is a CRE crisis, even Congress won't be able to find enough debt to cover another bailout).
4.) CRE losses will mount more quickly as:
a.) Firms are less sentimental than families. They will "walk away" without any qualms.
b.) Value of loans is directly tied to sales, which are themselves weakening rapidly (Home owners may be able to continue to pay even if they are upside down as long as they are still employed. Retailers will ruthlessly close outlets that are not making money.)
In the end, whether worse or not, this is piling on. It is the accumulated effect of interdependent problems that will ultimately bring on a hard recession.
In Sonooma county the retail category I see as insanely overbuilt is home improvement big box stores.We have Lowe's,friedman's and two Home Depots in the santa rosa/rohnert park corridor.easily 3x what would be required in a healthy economy.My hope is that one of them will be turned into an indoor shooting range,you could have 200,100 and 50 yard rifle, 50 and 25 yard pistol ranges,and indoor trap as well...
I agree with Rob Dawg,
For those of you in the bay area who think commercial real estate is not extremely over build, try driving around 101 and Matilda. 4 giant buildings on that corner, at lest 2 more in the distance, and I know 4 other sizable building in construction within 1 mile radius.
Other facts:
-In that neighborhood, Motorola and Yahoo are cutting back substantially.
-every large company I know in the bay area has a hiring freeze (software, hardware, semi, consulting)
-Venture money is still strong, but lots of money is going to web companies with small size using outsourced labor from East Europe and Asia
SM,
True, true what you say about the Bay Area. Add to that the fact that there are lots of RE-related zombie businesses waiting for the hoped-for turnaround in residential transactions.
Coupla points here. Pls read in the context of a variety of comm loans, land bank, construction, not just mortgages.
(a) Many comm real estate loans are nonrecourse and not all of those have guarantees by the sponsors. Easier to jingle mail when you dont take a hit.
(b) Many comm real estate loans are very short term, or have very short term 2nds (usually hard money), and lack of rollover ability can kill fast.
(c) The value of raw land for vertical /horizontal development is overwhelmingly based on the absorption rate. An equity investor looking for a 25% return (common) in a leveraged deal is now faced with two to four years more absorption on retail and office space because of the dead housing market ("if you build it they will come" doesnt work if theres no housing to draw from). mathematically this can result in a drop in NPV estimate of commercial land by up to 50%, depending on leverage rations. Highly sensitive partial derivative with respect to absorption rate to to very high required IRR on the (nonleveraged) equity.
So the concepts bet residential and general comm real estate debt don't hold except in the special case of fixed rate mortgages on high cap rate buildings.
Even there, inflation and corresponding yield curve rises at and after the 5 year, and higher spreads and risk premia, will reduce the valuation of comm rental property with existing leases that have 10 years to run.
So it can be horrible. Or not.
We'll see.
Also agree with the Bay Area comments although I wish that they would relocate some of those big box stores in Sonoma down to Marin or San Francisco. (That's not going to happen though.) Interesting article in Slate by Daniel Gross (Why America has too many stores. - By Daniel Gross - Slate Magazine about the glut of stores in the US. He includes a typical Slate anti-consumer society spin - but also makes the quantitative case that retail is overbuilt.
Forgot to add that for dealer projects (not investment projects), abandoning one at a loss would generate a net operating loss which could be carried back as well as forward and is worth a significant tax benefit, unlike residential.
Again, it can be easier and more rational to just abandon a comm real estate project at a loss.
Housing vacancy rate, Q4 07: 2.8%
historical homeowner vacancy rates
Office vacancy rate, Q4 07: 12.9%
Industrial vacancy rate, Q4 07: 9.4%
Retail vacancy rate, Q4 07: 8.9%
Apartment vacancy rate: Q4 07: 5.4%
Real Estate Data, Statistics, Demographics, & Trends: NAR Current News
Vacancy rates 2-4X of residential, already. And, the economic weakening has just started.
CRE strikes me as 'bigger beta' -- lots of discretionary, commercial use that will not be supported in the upcoming depression -- than residential. I think it is going to be horrendous in CRE (as it will be in residential).
Even if retail and office are not overbuilt, the cap rates are extremely low. A new strip center close to me containing the usual suspects (JCP BBY etc.) was packaged and sold to a European pension plan on a 3.7% cap rate assuming 95% occupancy.
I have no idea what the developer took out but it must have been plenty. I know for a fact they overpaid for some of the land because I sold it to them.
Fred - great point on the absorption rate and its impact on the equity rate of return. Your final point about CRE being horrible or not - how do you see this outcome not being bad?
Two different articles which flirt with the blaphemous concept that the derivatives market might be crashing.
Interesting number is $690 billion. Seems a bit too close to the BoA bailout number of $740 billion to suit me.
The Final Frontier - Online Remote Trading Message Board - Msg: 24331635
Speculative Onslaught. Crisis of the World Financial System: The Financial Predators had a Ball
Ross - thanks for the example. So a developer can still overpay and flip the property for a 3.7% cap rate. Why would a European entity want a US investment with a 3.7% rate of return (that may be optimistic)? What do these buyers see that most of us don't?
I have a client who's a partner in what is now a $65M project that a year ago was a $90M project because of exactly this.
It's already bad.
If I sounded like I thought it might be ok, I wrote sloppily.
CMBS on AAA flags should be OK I gues.
But in general if I were in CRE I'd be in it as a workout specialist or broker/dealer (securities, not land) to bring in new money to near-BK projects.
I meant to say it could be horrible or it could just be bad.
Any idea which banks stand to suffer the worst from a CRE bust?
No names please. Just ticker symbols.
Some of us have things to do.
Re EURO investors: What's even funnier is that US institutional investors (think CALPERS and the like) are going to Turkey, India, etc looking for deals cause it's all picked over here and the easy money already made.
Re: Banks...
Most CRE is done by regionals I suggest you google around looking for reports from the OCC.
OCC has announced a campaign of investigating regionals with heavy CRE (I think more than 3:1 ratio) to inspect and insure the docs are in order, the appraisals are current, etc.
Hope that helps.
Interesting number is $690 billion. Seems a bit too close to the BoA bailout number of $740 billion to suit me.
Once you start down this path of bailouts, how does it ever end?
Isn't the current looming ultrabailout just a natural consequence of the S&L bailout?
I guess you just have to get the economy to the point where bailouts are no longer possible and the spectre of all out collapse looms.
Arlo,
I suspect the buyers were shown a model of future potential capital gains since we all know real estate only goes up. Given enough inflation, they might be right. And in the long run we're all dead anyway.
Many comm real estate loans are very short term, or have very short term 2nds (usually hard money), and lack of rollover ability can kill fast.
I'm with CR on the severity of the CRE downturn unless fred's point above becomes a huge driver. This could spiral out of control. Everything is wound tight. If sh#t really hits the fan Roubini is going to look like a genius....
I have no dog in this fight financially other than my work, but I can tell you personally that very large, public big empty box builders are canceling acquisition contracts still in due dilly simply because they see no need to hurry and wind up lugging inventory.
Purely anecdotal and regional, but true.
Leverage is now the enemy and IMO only the high cash position players who can afford a multi year carry can be in the game, the rest wash out.
I forget which it was, but who just sold a nine-figure project to a joint venture with an IB because they can't service the debt?
Focus, I think, 2nd largest landholder in LV, announced they cannot service their debt for above reasons in my prior posts and are in restructuring talks with their lenders.
Again, anecdotal but very real.
Maybe CRE isn't as overbuilt as residential based on current use, but there are at least two things about CRE that make it potentially worse than residential:
Comparing RRE and CRE... (qualitatively)
Assume to a first order that for the short term the US population is a constant and that everyone needs one residence. That means that every currently occupied "home" will stay occupied and every unoccupied/second home will stay "empty." Absent net new construction, the residential excess is a constant.
OTOH, the demand for commercial space is much more elastic, extremely dependent on the economy. If the economy tanks, then the commercial vacancy rate should explode. I guess that's why commercial rents fluctuate so much more than residential rents.
ac -- all out collapse, no bailouts possible -- seems inevitable to me.
We are already running $200 billion plus federal deficits;
We risk seeing rising long-term interest rates on Treasury debt, if inflation expectations --> premium keeps moving north;
And, federal collections have now begun falling (see Jan. year-over-year):
http://www.fms.treas.gov/mts/mts0108.pdf
If the federal tax collections keep falling year-over-year, we will rapidly lose (yeah!) the ability to contemplate massive bailouts.
Slightly OT but ultimately related I think.
Here in the Washington D.C. area, although the slowdown has hit, most assume the presence of the federal government will cushion the fall.
A Washington Post metro section article day had some sobering numbers though.
"Richard Clinch, a researcher at the University of Baltimore, said that from 2001-2006 as much as half the job growth in the metropolitan Washington area was linked to the soaring real estate market. Many of those workers are "hidden" in jobs not widely thought of as linked to home sales, he said. The chain of workers involved in real estate deals has grown over the years, largely because of the amount of money at stake. "
A second researcher is quoted as saying hundreds of thousands of jobs in the area are being impacted. Many of the examples given are of people who have not been laid off, but who see their amount of work and income falling by as much as 40-60%. Everyone from plumbers, to termite inspectors, to gift basket purveyors.
As that works it way through, it seems bound to impact CRE as part of a negative spiral.
Finally, I can't help noting a pet peeve. In recounting the problems faced by a women who researches titles (and has seen work drop off sharply), it notes that "she refinanced twice, exchanging some of the equity for cash."
To be accurate I think that selling a house exchanges equity for cash, while cash out refis exchange equity for debt. Sigh.
Rob, thanks for posting that study of retail space growth. You would have thought retail growth would slow with the blast off of e-commerce over the last decade. But not so. Now, with permanent $3+ gas, it looks like even more commerce will be shifting on line. So, there's way too much retail space out there.
Also, what's that with 10 of the top 11 most retailed metros being in Ohio? Didn't they get the news about the Rust Belt?
albrt,
Excellent points. I was thinking CRE would be just as bad, but now I'm thinking it'll be worse. Geez, am I not bearish enough?
p.s.: There will of course be demand destruction in RRE due to household consolidation.
A thought about the different likely trajectories of residential and commercial property prices--I'm not sure what it means to say one will be worse than the other.
It seems to me that the price discovery process will progress and two different rates, and I would suspect that the prices of commercial real estate will adjust far more quickly than those of residential properties.
If so, what looks like greater volatility in the commercial market will be better understand in the context of differing time frames of the two processes. Residential home owners and potential purchasers, who are influenced by a wide variety of non-economic factors may rationally (in light of all the considerations influencing them) defer or move more slowly towards an equilibrium price than will commercial investors, lenders and occupants (who should be a bit more purely economic in their decision making).
We are hearing a great deal about the dimension of volatility that is reflected in the size (whether absolute or relative) of price swings, and much less about the time frame of the price discovery process. To put it in terms near and dear to me, the amplitude of the wave is being emphasized at the expense of its period.
albrt,
You are exactly right. My sense is that a majority of the posters here don't understand or underestimate how low cap rates have been, and how quickly prices will adjest to the downside once cap rates return closer to historical standards (which are closer to 10%). If you bought within the last five years or so, the value of your property will plummet (notwithstanding rising vacancy during the impending severe recession/depression). Moreover, this fact will be worsed by the huge overbuilding wave that is just ending. All real estate will be crushed, not just residential.
I know nothing about CRE but I noted in my small midwestern town of 10,000 people in the last three years: 3 new retail auto parts dealers, 3 new pharmacies all within 5 blocks. Geez I thought how does that work?? Answer it probably doesn't. And that is all within a State that has had a very bad economy for several years......
Elvis,
Any links to charts showing historical cap rates?
Related report in the Chicago Tribune on overbuilt schools to support housing that isn't filling up as planned:
As housing boom stalls, suburban schools seek students to fill buildings
tj & the bear,
I don't know any offhand, but you could check any of the commercial real estate brokerage sites for info. Cushman Wakefiedl, Grubb & Ellis, Trammel Crow, etc...or things like Loopnet.
By the way, I meant to say that if you bought within the last 5 years, you will soon be underwater. All property owners will see values decrease.
You can find reasonably good data on cap rates and other stats from Integra Realty Resource, IRR.
The rate they show are from my experience pretty good. Comparing my area of the country to their est.
You can still sell older properties for cap rates between 6 to 9%. I suspect the newer developements are the ones with ridiculas (sp) prices.
People in the Biz know how much to pay. But traunched paper to pensions is another matter.
I am looking foreward to bidding on some of that default CMBX. My threshold is a discount to replacement cost of 30 to 50%.
I have to disagree with CR also, I think CRE will be equally as bad or worse than RRE.
The extremely low cap rates (I think Ross mentioned a 3.7% deal, and I have seen some as low as 2%) and assumptions (95% occupancy) will prove fantasy. With more equity from purchasers being required by lenders, values will have to go down to provide an adequate yield to buyers.
The revenue side can change very quickly. For example, look how much space was vacated very quickly by the subprime lenders, especially in Orange County CA. When service companies can't grow the top line, they start the shared office concepts with staff (if all the offices are occupied, work at home. Employees will seize these opportunities to save on gasoline expense.) This leads to businesses trying to release some of their empty space and this can come back on the market just as fast as residential foreclosures and at typically lower than market lease rates.
K-, thanks for the link to the Chicago schools article.
Here in San Diego, we are building multimillion dollar bus lanes on highways and lightrail lines to nowhere. That, just as we are experiencing an exodus of nativeborn folks and, now, illegals.
Traffic is clearly getting lighter. In fact, some days it is near spooky how light the evening traffic on IH5 south is.
Traffic is clearly getting lighter. In fact, some days it is near spooky how light the evening traffic on IH5 south is.
Just think when we're paying $7/gal for gas later this year.
elvis,
in my practice (quantitative tax law, often in real estate structures), i have pleaded on my knees (till i broke one) to every client PUHLEEZE let me show you how to hedge cap rate exposure...
although an imperfect hedge, really you can do this with interest rate derivs, even with exchange traded stuff...
they never listen.
n e v e r.
With credit drying up, we'll be more clever.
We lived in Sacramento back in '99-'00. The best school in town was private (Brookfield). The school spent its money on great teachers, and had a so-so facility. That was because the facility was rented: M-F, school took place, and on weekends, the place reverted to what it was built for, a synagogue.
We parents were quite happy to pay big money and get our kids a great education at a place with mediocre aesthetics and facilities.
I see these new multimillion dollar schools, fire stations, and courthouses, and say to myself that the government crash cannot come quick enough.
OT- $7.00 gas=Depression..Driving down 15 thru inland empire to Temecula..Empty CRE everywhere...Sister owes 400K, owner down street just listed 250K..Same house and she didn't refi or pull money out..
CRE will be worse but less exposed by the media..Out of site out of mind...
Had dinner in Irvine with 2 realtors working for Builder-Standard Pacific..
They both thought stimulus plan with FHA and adjusted limits will bring market back this year..Didn't want to ruin the mood, So I kept sippin beer...
ac,
stop it you're giving me goosebumps!
elvis-
What you state is the exact reason why historical CRE 10-CAP's are a thing of the past. The banking system cannot handle a return of historical values in either CRE or RRE.
And if they did revert back to their historical means, the System would either fail or we would be in a Great Depression. The Fed and the Central Banks clearly understand this.
I drive through industrial parks and commercial centers here in SoCal and almost every one of them has a for lease or sale sign. Projects under construction all are looking for tenants or to sell. New businesses closing at a steady pace. It is getting creepy. Large big box sites sit empty for years after closing. Right in the middle of prime traffic areas. Sure it is regional, but this region accounts for 5% of the US population.
All, I think it's a good discussion about CRE vs. residential. There were many silly loans made in CRE, but so I don't think CRE was as overbuilt as residential.
I've covered this before with graphs - but basically RI as a percent of GDP was at an all time high. CRE as a percent of GDP was somewhat above normal.
Best to all
I agree, Calculated. CRE was definitely not as overbuilt as residential.
picosec, are you kidding me! This is the old "they don't make any more land" load of crap. Let me tell you that they do make more land. My grandfather owned the first high rise apartment building in northern New Jersey and during the depression when the population was growing leaps and bounds, the occupancy dropped from approximately 94% to 40% in short order. How did it happen since they stopped building. He told me that the sons and daughters, their spouses and everone that was related moved into spare berooms with their parents to conserve cash. My grandfather went broke, started drinking and it eventually killed him. Don't tell me residential is stable.
Cadwallader recently canned attorneys that created these things.
A very interesting read of the lawfirm side of the mess:
Cadwalader: Eye of the storm | Features | The Lawyer
I forgot to mention that I know one of the attorneys at Cad who was fired and who did commercial mortgage backed -- so you got to imaging that these might be in trouble too.
Quincy k,
Yes, you are right. It will be another depression.
CR, You are right. Residential wasn't as overbuilt as CRE. But, the values were every bit as inflated, so they will both see big price drops with commercial likely recovering quicker (assuming jobs come back).
Property values drop -> property taxes drop -> municipalities going belly-up?
"Residential wasn't as overbuilt as CRE." Oops, I meant the opposite. My dyslexia rears its ugly head.
ac, barring a serious weather or geopolitical event affecting oil supply, I doubt we'll see $7 gas this year. We will probably see $4 gas by end of May, unless oil goes back below $80/gallon. The reason is the refineries can't produce for summer time demand without a higher crack spread (their net profit amount per barrel). The reason for that is refinery utilization rates higher than 86-87% drives up costs (overtime, wear'n tear etc). Gas would have to rise to about $4 given where oil is right now.
However, this year, overall oil supply is not likely to erode dramatically, and might even tick up over 2007 levels. So, I don't think we'll see $7 gas this year. Maybe 2009. 2010 at the latest.
This story just about sums up the entire global economy right now:
Man dies in cake-eating contest
CR,
I agree with the point made above by Rob Dawg that CRE and especially retail has expanded for a very long time at way too high a rate to be sustainable (1982 to now). All during this time the consumer did not budge because of the consistent credit expansion. That is at an end now.
The telling story is not the absolute high of the graph but the accumulated CRE inventory over this period of credit expansion which will now catch up with its investors as the consumer is failing for the first time in this period.
The system better start to cope again with cap rates of 8% to 10% and what that will mean is obvious to all of us.
I know in Indianapolis they just had a Cabela's bail. One day the bulldozers were clearing the site, the next they were gone. The company has postponed completion for the foreseeable future. Best of all that was the anchor store for a big development project. Last I heard they had several other planned CRE projects in the area reevaluating whether to go forward.
Slightly OT:
UBS Senior Economic Advisor on a $1 trillion meltdown...says US govt bailout is as sure a thing as he can imagine, and will happen by Oct 08.
FT.com / View from the Markets
cd
the issue is not how high above some arbitrary fair value CRE is, but to what degree is it negatively sensitive to changes about to happen, in such things as cap rates.
there would seem to be more of a natural bid under housing prices (albeit way below where they are now) than under CRE, as no one HAS to open a store on that lot.
Elvis' comment -- '...the (CRE) values were every bit as inflated (as residential), so they will both see big price drops...' -- makes great sense to me.
This may be an example of such: a local fellow paying $100 million for a 115 room hotel. When I make plausible assumptions about room rental rates and profit margins, I arrive at a 1-2% return.
Page not found
As my wife and kids tell me, 'Obviously, you just don't get it.
ac, barring a serious weather or geopolitical event affecting oil supply, I doubt we'll see $7 gas this year. We will probably see $4 gas by end of May, unless oil goes back below $80/gallon...
I think if speculators can get the storage space and continued cooperation from central bankers, there's no limit to how high the price of gas and other commodities will go.
You have to take the money out of the hands of Wall Street savages for it to stop.
As my wife and kids tell me, 'Obviously, you just don't get it.'
Two years ago I didn't "get it" about housing either.
Now that's been dropped and I don't "get it" about other things.
Here's a news story which seems to support Cobradrivers statements about CRE in Florida
Story On CRE In FL
I liked this quote
"When asked to quantify the amount of oversupply, he said, "Call it years, because that's what it's going to be."
Not sure if there will be a CRE bust, to be honest. Slowdown, yes. There is no oversupply, and thanks to the credit crunch, lenders are far more disciplined and have tightened underwriting standard. The NPL portfolio mentioned in the article consists mostly of loans in Florida, most likely secured by condo projects.
George Magnus is my kind of guy. I'm disappointed, however, that he used the term 'Minsky moment' instead of 'Conjure moment.'
Get ready for the global financial meltdown coming to a money center near you.
Glad to hear that it's not just me, ac!
Mike, unless Cheney starts a war with Iran, I agree.
can't be rules out.
In January, First Industrial Realty Trust formed a 10-year joint venture with the California State Teachers' Retirement System to invest $475 million in industrial land and buildings in overseas markets. CalSTRS is contributing $150 million in the venture and First Industrial has a $17 million equity stake. Source: Institutional investers pushing more capital into commercial real estate
The same article says:
CalPERS announced in December it would pour an additional $5.2 billion into its $19.8 billion real estate portfolio, a 2% increase over its 2007 commitment level. Combined with other new alternative investment strategies, CalPERS expects its new asset mix to return 9.06% in 2008, up from 8.92% in 2007.
Other reports have those investments going overseas as well.
so much for investing in California with the multiplier effects. If you knew CalPERS and CALSTRS were not interested in California CRE how would that affect your view of the State as an investment locale? Worse these organizations are using tax dollars to drain liquidity from the State to pursue higher yields. Effin brilliant.
OT -- I thought that Banker said that Golden Schmucks was isolated from the credit bubble mess.
Maybe not: "...The firm's leveraged-loan exposure is equivalent to 1.1 times its net worth, versus an average of 0.7 times for U.S. brokerage firms..."
Goldman Profit Magic May Run Out - WSJ.com
sorry Mike, you covered that scenario with "geopolitical event".
An assumption of 95% occupancy? and 2% Cap rates.....I smoked some good shit when I was young,but I stayed away from PCP and Cheap Vodka.A 2% cap rate !!!???By definition half the populace has an iq under 100,but these folks are special.
They both thought stimulus plan with FHA and adjusted limits will bring market back this year.
That's some serious grasping-at-straws.
mp,
Isn't Conjure getting a little long in the fang?
Every time I tell myself to be patient, he gets me all excited again!
As I said Friday, bullshit, gasperino should be investigated for leaking utter garbage-
Ambac Moves Closer To Raising $3 Billion - WSJ.com
MP,
Any truth to the rumor that conjure eats raw land and poops out polished CRE mini-mall turds?
From Mike in Long Island's link (for Florida):
Based on my assessment, all product types have been affected but especially hard hit is the industrial-office-flex market.
And taking a look at the Charge-Off and Delinquency Rates from the FRB Statistics, plotting the quarterly data for the YoY rate of change for Commercial Real Estate Loans you will see an unbroken ramp from 1Q2006...
The point being that it makes it challenging (for me) to be sanguine about the prospects for CRE and the pain will be limited to condo projects in Florida.
i've seen a number of downtown jacksonville CRE buildings show up in the foreclosure listings already...they started to build that area up prior to the superbowl a few years back, it's still pretty ghetto though...
i've seen a strip mall near where i work that's had a few lots open for years literally...citibank moved to a new building probably about 2 years ago, they used to lease the buildings near where my company currently does...guess i'd echo the sentiment that CRE in florida could get ugly too...
that said, my realtor showed me that we're at about 20.3 months supply on RRE...ewwwwwwwwwwwwww!
I am of the opinion that CRE is certainly heading down but it won't be as bad as RRE. Why? The incentive to furnish fraudulent data was not as obvious as it was with RRE. NOI numbers could be faked like stated income was for liar's loans (although one borrower, LeNature, managed to get away with it before folding). Also, there were few "silent seconds". CRE LTVs, albeit based on inflated appraisals, were almost always at 80% or below. There was only so much silly money being lent, so CRE values could not have become as inflated as RRE.
As Rob notes, you can't judge the downside of CRE by comparing boom level overinvestment to RRE. Instead, you have to look at credit, consumption, savings, etc. all reverting back to pre-Greenspan levels. Not absolute levels, mind you, but relative. CRE is a bubble that was building for 20 years, not 5.
tj- "Every time I tell myself to be patient, he gets me all excited again!"
Hey, I don't make up this stuff. Check out Circling the Drain's FT video.
RobDawg-"Any truth to the rumor that conjure eats raw land and poops out polished CRE mini-mall turds?"
Nah, RobDawg. Conjure isn't into mini-malls.
Here's an interesting link regarding hotel LBOs. Hotels comprise a huge percentage of CRE.
FT.com / Companies / Property - US hotel real estate sales set for slide
Along those lines...
Companies Curtailing Travel Budgets
NEW YORK (AP) -- As the economy cools, companies are starting to shrink their travel budgets -- a move likely to put further strain on struggling airlines.
Hotels, car-rental agencies and restaurants, which along with airlines employ roughly 4 percent of U.S. workers, will also feel the pinch.
[snip]
Went for a job in far suburban Virginia (Loudoun/Prince William Counties), today.
Lots of empty office/mixed use/campus style developments, with plenty more in the pipeline (everything from development of raw land to almost finished). This does not bode well for the future.
There were also tons of new residential - everything from luxury SFHs to 4-story (limit of wood-framed structures), also in every stage of development. Plenty of those sitting empty for more than a year, also. The top end was over-represented. Although we didn't stop and look inside the homes, I had the impression that there were plenty of granite countertops.
As these homes are not within an easy/reasonable/affordable commute to employment centers, and as the land they are on is more suitable to farming, and as they only add to the oversaturation of this product type in a market which cannot afford them, I have a feeling they will not fulfill their actuarial useful life span estimates.
In response to tj & the bear 11:11PM
Yes you can because the same players were involved. If Countrywide was willing to lend money to stiffs for residential purchases, then it follows that the loans they made in the commercial space were equally enthusiastic. MLCFC bondholders, watch out.
crabofsteel,
I'm not sure what you are disagreeing with. Yes, loose money was everywhere, and that'll hit CRE just like it as RRE. The point that I (and Rob before me) was making was that focusing on bad lending ignores the fact that CRE has been overbuilt for decades due to our over-consuming society.
UBS Senior Economic Advisor on a $1 trillion meltdown...says US govt bailout is as sure a thing as he can imagine, and will happen by Oct 08.
It was always a matter of when and how much, not if.
And I think the most important question is whether it could actually make things worse instead of better.
ac,
That's easy -- worse. No question about it.
WSJ - CMBX Signals Trouble In Commerical Property; 'Doesn't Make Sense'
CMBX Signals Trouble In Commercial Property; 'Doesn't Make Sense' - WSJ.com
purely anectdotal, i know, but my town in west RivCo CA went built crazy at the tail end of this whole thing. The unfinished housing tracts quit seeing activity 5 months ago. the minimalls and tiltups all finished building - but only the anchor shops opened in most of them. think gigantic Rite-Aid all alone in an empty parking lot.
Okay, so if the gub'mint bails out by $1T (uff da), then would it not be a good idea to remove myself from all gub'mint bonds?
How in hell do you support that kind of bailout? Doesn't it lead to a hugely increased risk of ultimate default by the goverment?
I'm legitimately having a hard time wrapping my head 'round that figure and concept.
IMHO I still see little chance of a bailout. It's an election year, the numbers are too big, and the obvious beneficiaries are not sympathetic. Besides, where do you find the money?
It's all BS anyway... all these proposals do nothing for J6P, and he's the one that's tapped out. Any bailout would take money away from J6P towards one or more special interests. As long as J6P is tapped out, everything else is moot.
"The Ultimate Sell Signal"
Chief Accountant at GAO resigns...."I have been around a very long time, and I have never seen so many simultaneous challenges that I would describe as undeniable, unsustainable and virtually untouchable politically," Peterson said in a prepared statement.
CORRECT: The ultimate sell signal Bill Donoghue - MarketWatch
"...but to be a lawyer was very heaven... "
"Faulting UBS for Losses in Bad Debt, Bank Is to Sue"
NYT: Faulting UBS For Losses In Bad Debt, Bank Is to Sue - NY Times
I believe Rob Dawg, and especially Fred for pointing out some of the problems in CRE.
I think the reason so many people are likely to be 'surpised on the downside', including CR... is their models are just based on linear assumptions. Even vaunted Fed Chair Volcker made these mistakes... thinking for example that money velocity wouldn't change substantially as he jacked rates to the moon.
Well, we know how that turned out.
In a few months, "Surpised on the downside" should make an appearance on the top ten lists.
At 40 sq ft per person, why can't we just move into the malls and create arcologies already? Save time, gas, and all that and just live in the store - the ultimate consumers!
What's CRE bust?
homedad, that big bailout will be tough to pay, won't it? How about defaulting on some of the new $1T of govt bonds through a little inflation? I think you can see what is likely to happen.
Those looking to short CRE I would advise consider shorting Newcastle (NCT), which a huge and highly-leveraged portfolio of CMBS. I shorted the stock mid last year, and it has been a very profitable investment so far.
The stock, like several other financial companies that have made bad RE investments, is a bit hard to short. E-Trade no longer has shares available to short, so I opened an account with Scottrade, which does have shares to short as of last week.
In Austin, TX (post 2000 dotcom bubble) CRE was more visibly hit than RRE since they stopped projects on a dime (many skeleton or "naked" structures were around for years and were eye sores -- google will probably dig up few examples esp. the Intel building). I don't recall any "naked" houses since the prices in Austin never got too high during 1999-2001 and didn't drop too low either during 2001-2005 when prices fell.
Here in the O.C. (Huntington Beach) I've noticed recently that almost every strip mall has a for-lease sign. Even where I work, in an office park, there are few buildings around the corner where they look new and empty!
With the current downturn, I have no idea if CRE would be worse than RRE.
When people get poor, they spend less. They don't travel, they don't buy granite countertops, Hummers and assorted usless junk.
They buy food, clothes, medicine and entertainment - and they cut back on everything else.
Most of the CRE debate here has focused on whether it will continue to expand into the vacant, overbuilt space. My question is - how much will it contract?
Can we really support ten times as many drugstores (and banks) as ten years ago? How many of those big boxes are gonna consolidate?
How much retail will survive with the HELOC ATM out of service? How many existing businesses are hanging on by a thread - right now?
There is going to be more retail consolidation before this is finished than anyone suspects now - with high energy prices and the internet driving the final nail into a lot of retail coffins.
Regarding CRE overbuilding and demand. Looks like there is plenty of CRE in the pipeline yet to hit market ;
Commercial Builder Woes: What if Theres No Tenant at the End of the Rainbow?
"Some 145 million square feet of new retail space was built in the top 54 markets last year, with another 123 million square feet in the pipeline this year, according to Property & Portfolio Research. By comparison, the annual average between 2000 and 2006 was 118 million square feet."
Commercial Builder Woes: What if There’s No Tenant at the End of the Rainbow? - Developments - WSJ
Cabela's is an example of a company with a nice niche that became hot and trendy. Instead of saying, "isn't it great that our little niche became trendy for awhile," they played the Wall Street growth game and tried to turn a niche into a mainstream phenomenon.
The ultimate consumer society masquerading on weekends as hunters and gatherers. How stupid.
There's been no such thing as smart conservative, realistic retailers who understand and honor cycles.
It takes a lot of gasoline to hunt and fish.
Most of the CRE that has been securitized over the past few years was structured with IO (Interest-Only) payments, often a full term (10 year) IO. Also, CRE loans typically have fairly substantial escrows in place to cover shortages. The combination of these 2 features means unless you have an absolute disaster in CRE, which is always possible, I doubt it will be worse than RRE.
I expect you won't see huge defaults or problems until the 2004-2007 vintage of CRE loans comes due for a refinance, several years down the road.
Looking for CRE meltdowns probably won't be a particularly exciting pasttime for another 2-4 years. You'll have some exceptions like Macklowe, but those will be the exception.
donna writes:
At 40 sq ft per person, why can't we just move into the malls and create arcologies already? Save time, gas, and all that and just live in the store - the ultimate consumers!
then to complete the package, turn the Sears brand into Public Storage...nobody shops at sears anyway.
Rr's link above is extremely important. Walker has been the only voice of sanity and intellect at the federal level. Now that's gone. I don't know what political pressure was applied to push him out, but I'm guessing the Treasury's books are going to be cooked beyond belief.
Even if 99% of America wasn't listening, Walker's work was critical as a possible threat to expose corruption and incompetence. Now there's no one left to tell you how much of your money is being stolen.
Shorts take note, the Visa IPO is going to put some more cash onto the bank balance sheets, a lot of the banks were founding members and are going to get a portion of their stakes monetized. The cash will still burn a hole in the pocket of the clueless, but nevertheless postpone their demise. No timing announced yet, but if I were Visa, I would move quickly.
OT, but relevant. I've just watched an Bloomberg interview with Bob Parker, a vice chairman of asset management at Credit Suisse. Another one going on record to say the "rescue" of Ambac will turn sector around. He also claims the banks, in particular, have already reported the worst of their losses related to the subprime debacle.
But an incredible exchange occurs moments later:
Parker: "The key question, however, is are there bad positions elsewhere, whether it be the pension fund industry, insurance, the mutual funds, other investors. I'm sure there are other 'stale' positions, but I don't think it's going to have the impact that the bad debts have had in the banking system."
Interviewer: "A million small writeoffs as opposed ..."
Parker: "Yes, small pockets everywhere."
Interviewer: "Um, which, uh, points to the fact that the banks managed to offload a lot of their subprime debt and sell it .. uh, sell it in various forms."
Yes, indeed. Small pockets. Classic.
Cabela's has backed out of plans to build here in Hooksett, NH. after 3+ years of planning and site preparation they say they will hold off till 2010 and reassess the market situation.
My nephew works in the Boston area for a fire sprinkler company with 90+ employees, they have been out straight for the past 5 years with crews working 7 days a week.......now he says they stretch 4 hours of work into 8 and with large layoffs right around the corner.
Yet 2 new Lowe's being built in Manchester NH area. That will make 3 stores within 10 miles of each other.
Way overbuilt. CRE will take a huge hit.
Rob Dawg writes: If you knew CalPERS and CALSTRS were not interested in California CRE how would that affect your view of the State as an investment locale? Worse these organizations are using tax dollars to drain liquidity from the State to pursue higher yields. Effin brilliant.
Rob, you've got this backwards. There's lots to be worried about CalPERS and CalSTRS, but the worry is that their investments fail to perform at their 'expected' lofty rates, and the taxpayer has to step into the breech.
With that in mind, I HOPE they're not investing in California CRE, and are diversifying globally rather than staying overweight in the high-variance, boom/bust Cal economy. I'll trade the loss of the short-term stimulus for long-term stability any day.
I see someone mentioned it arlready, but go to my site and read the commercial real estate and GGP analyses in detail, there is a lot of stuff there - Reggie Middleton's Boom Bust Blog - Membership required!
and Reggie Middleton's Boom Bust Blog - Membership required!
I had my staff value 260 properties in many distinct geogrpaphic areas including retail, apartment, mixed use, and office space - all by hand. I have over 2 GB of data, and
I think I have a pretty good handle on the trend here. The subject of my analysis event went so far as to send out a press release and take stabs during the earnings conference call in lieu actually countering my findings.
CRE and CMBS are probably the most underappreciated risks in today's credit markets, next to the junk bonds and leveraged loans. I will reveal what may be a big surprise to many in the leveraged loan junk bond markets soon...
DannyHSDad -
Hey someone else remembers the ugly scar of the Intel building. Now it's owned by the state. What's amazing to me is that 7 years after the dotboom they never managed to fill some of the see-throughs on 880 here in the Bay Area. Luckily, they make for beautiful contrast in the sunset.
As the bust began I made the comment, "Those sure would burn nice", as we were picking tomatoes near Santana Row , we got some pretty 'hot' news coverage... 6 Months later the local police didn't want the FBI "interfering" in their "investigation". Ahhh that's the way the CRE crumbles.
But today the radio told me "The National Association or Realtors wants you to know that the commercial real estate market is still fundamentally sound!"
Hey CR,
I know this thread is long dead, but just in case you take a peak... Here's an excerpt from an interesting article from Prudent Bear (written by John Rubino titled "After Denial Comes Accomodation"):
Most commercial lenders and property owners dont agree, but commercial real estate is likely headed for a worse downturn than housing. After all, a subprime borrower living a house will typically do whatever she can to keep the house. The scoundrels I know in commercial real estate will send the keys back in a heartbeat. So once the downturn starts, commercial real estate will be marked to market brutally and efficiently. The only winner will be the foreclosure and bankruptcy attorneys.
Link:
DollarCollapse - Your ringside seat for the global financial crisis
You are right. Residential wasn't as overbuilt as CRE.
rc helicopter
Tactical Flashlights
video game
And if they did revert back to their historical means, the System would either fail or we would be in a Great Depression.
rc helicopter
Tactical Flashlights
video game