Nemo?

s_puttnick writes:

• Also, any suggestions on what to do with large, newly closed factory buildings in small midwestern towns?

Dissassemble and ship in Ukraine-made
Antonov 124 to Russia.

Cordially,
Килгор Траут

OT - Hospitals in trouble

Hurting for Business - NY Times

“There’s a lot of C.F.O. doom and gloom,” said Robert Shapiro, the chief financial officer at North Shore-Long Island Jewish Health System. “The sky may be really falling this time.”

So the 'not as bad as all that' CRE bust will contribute to the 'under 8 percent unemployment' we also expect to see?

Anonymous writes:
Of course, New York will be a different story.

So, the Wall Street shenanigans are making room to shelter their now homless former customers ?

CRE issues will be hitting during the peak of the recession. Coupled with a permanent severing of MEW for the near term I think some sectors of CRE are in for some serious harm.

Coupled with the fact that, unlike previous times, neither banks nor private investors will likely be able to come in and scoop up deals on these properties under new and more strict lending standards.

Btw, where is Jaz anyway ?

Rumor has it that Jas got laid and is now writting the optimist's manifesto for America.

Jas is probaably insulting someone else today. If you feel the need for personal degredation, I'm sure he will be back for you.

Ah, this is near and dear to my heart. Why? Because this is what I do. I do Commercial and Residential contractor and developer takeovers for sureties, and also outsource CRE/residential land portfolio asset management to banks and others. Want my perspective??

CR, not to argue and I have much love, but in this case you are wrong. It will be worse. Severity rate of default might be lower, but by pure dollar investment, balance sheets are taking and going to take huge hits.

Out west, land, commercial or residential, has NO value. Replacement costs are 10-20% higher than picking up a new built, empty building. Proformas are not even counting land basis, because new investment will not support any land costs at all. By the way, not much work in proforma's either.

CRE is going down hard, nationally, and my clients, the insurers, are sharing some very scary numbers with me. Just on contractors alone, default rates at the sureties are being quietly set at 80-85% for ALL contractors, not just general contractors. Their working capital is gone, credit lines cut, and with the exception of some big nationals, my contacts tell me 6-8 months tops, and the subs and smaller to midsized generals wont exist. Poof.

Banks are getting so much back, they cant even sell it. Why? because a lot of residential and commercial was designed in 2004-2007 vintage, and 20-50 million dollar infrastructure improvements, that were JV or shared costs, will NEVER get funding in the new onesy twosey environment. That means 80% of everything they are getting back as P&E or half done is worth zero, as to complete build out to turn the first closing, you have to front the infra. The P&E stuff is the worst, because the 2 million the bank spent on design and entitlement is worthless, and will take another 2-3 years, and another 2 million to redesign. Couple that with noone to build it, and at that point, who really cares? We have enough stores for people with no money, so they can buy from retailers with no sales, which drives the replacement cost ratio higher, land is worth lass than zero, and they then write down 10's of millions per property, not just 150,000 per home. To many of those as well.

I think you are wrong, but am interested to hear your thoughts. Again, much respect.

I posted this on the previous thread, but think the thread died, sorry if its a bit off topic on this thread:

I am pessimistic on the future couse of the economy, but I am not at the point where I think that the U.S. is going to become a failed state or that society will totally fall apart. My pessimisim is tempered, we are in for one heck of a nasty recession, at least as bad as 74-75 or 82-83, but I think we will avoid GD2. Go ahead and call me a pollyana, trust me it is NOT what I am called around the office. I also refuse to get into this buy guns and ammo bit. i'll take my chances thank you. there are things I would die for, but the list is much shorter of things I would kill for. Thats a bit strange since I am far from being a Christian (although was raised Episcopalian, and while my Grandma was alive would go to alumni days with her) and if you get down to the esssence of the Gospel, that attitude is near its core. Funny how removed the thought is from most dogmatic "Christians" though. I have always gotten a kick out of the saying about there being no Atheists in foxholes, when the closer reality is that there are no Christians in foxholes. Somehow I have always had trouble seeing Jesus fireing mortar rounds or driving a tank. Sorry for the religious digression here.

Back to the main point, we have big major leauge problems, but history shows that the U.S. is a remarkably resillient place, and while resources may be finite, human creativity is infinate. We will eventually move to a more sustainable way of living...wind solar conservation etc. We may not longer be the only superpower in the world, but we will reamin one of the major powers. We can get back to a more equitable distribution of wealth in the country, and thus even though over all the country will be poorer in aggragate, five years from now, the median American will not be all that much poorer than they are now. In the grand scheme of things, not all that bad. Not like the mass of Americans are going to be living like people in the slums of Calcutta. Not like we will have a real standard of living like we had in the 19th century either. I could be wrong, but that is not the way I will bet. Short term (6-12 m) I remain bearish, but perma bears are usually proven wrong.

I agree that CRE is not as big a problem as RRE, however, it comes on top of the RRE problems. There is probably no boxer in the world that throws a harder punch in the 12th round than he does in the first or second round, yet more knockouts are scored in late rounds than early rounds. Why? because of the cumulative damage the other fighter has endured. Thus while CRE might be just a mediocre left hook, it is part of a combo that includes a right uppercut, left jab, and a right cross. Down Goes Frasier, Down Goes Frasier

Werner, Peak oil means that we can no longer increase the rate of production of oil, not that we are "out of oil" Yes peak oil is a HUGE problem, but it is not like there will be zero oil or nat gas. Actually intermediate term NG supplies look fairly good with all the shale basins. We will still need peaking plants, probably NG fired, but also some coal (dont like it from a GW standpoint but realistically it will be there). If we can solve the waste problem, nukes can also play a role. (Note to BO: Nevada cacuses are over, open Yucca Mt, but need to build new rail line to avoid LV to ship stuff there)

EvilHenryPaulson writes:
If RRE and CRE construction will be in a slump until the inventory is worked off, which could take multiple years: what kinds of jobs are former construction workers going to take?

EHP: The snarky answer is they go grow maze in Mexico. In reality, yes there will be many long term unemployed in the construction sector. Some will be absorbed by the infrastructure building stimulus programs, but certianly not all.

Possible future irony.

The taxpayer has bailed out the banks. The banks will now have to bail out the taxpayer to keep the system going. Debt forgiveness, one way or the other, is in the future.

Guarding against dollar devaluation has led me to use my available credit to buy real assets, especially food and tools. If I'm wrong I have some extra debt to pay off. If I'm right it gets fully/partially forgiven and I'm still ahead. Should we face full collapse then I'm way ahead.

Debt as a worthwhile endeavor.

So if you want to reduce your chances of being killed by a falling executive, walk around CB Richard Ellis instead of the Irvine Company.

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Does anyone have a decent Mud Cake recipe?

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Both

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Have you heard the good news?

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Looking at the investment side is only one piece of this puzzle.

The more important questions are:

How big is the commercial real estate market relative to the residential real estate market?

How levered are the players in the commercial real estate market?

What are the implied cap rates in the CRE sector?

CRE means a big hit for law firms who did very well off of it. Which equals less quality office space needed. Which means no bonuses.

No, not a major market segment - these attorneys. Yet, it is just one more spoke broken on the wheel of economic prosperity.

Also, any suggestions on what to do with large, newly closed factory buildings in small midwestern towns?

Detention Camps for Evangelical Dissidents.
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Also, any suggestions on what to do with large, newly closed factory buildings in small midwestern towns?

Well if we could get congress to pass the 2007 Homestead Act and get people to move back into the Great Plains and Midwest we might be able to retool and produce a useful product.

I'd homestead in a minute if it was offered. And there was a job other than subsistence farmer. Though that looks to be a growth industry.

S. 1093 [110th]: New Homestead Act of 2007 (GovTrack.us)

One thing to remember is that a very large portion of in-place CRE was refinanced over the past 3-4 years with 10 year maturities and very loose terms. This may keep things tame for a while. Yes, there will be defaults, but they would be a lot worse if the timing was different.

The absolutely enormous "if" is...if the recession lasts into 2012 or later, there will be a lot of CRE coming due for refinance that simply will NOT be able to flip. The securitization market is currently dead, and if it doesn't make a comeback in some form, there just won't be enough banks and insurance companies lending to float the inventory.

Disaster will ensue.

"Or in other words, people who paid $600k two years ago for a house only valued at $400k today still have the same basic needs for electricity, roads and consumer goods as before."

Huh... that would presume that spending levels are already at necessity levels. There are also plenty of places like the inland empire that had plenty of CRE built on the expectation on consumers that will never materialize.

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Did ya'll buy the Jeffrey Dahmer cook book yet?

No, but I did graduate from the DeMeo School Of Butchery.

What's Eating Raul?
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x, at least you didn't lose your ability to type.

"There are also plenty of places like the inland empire that had plenty of CRE built on the expectation on consumers that will never materialize."
Reformed Dope Brontide | 11.09.08 - 6:58 pm | #

Same here in this area of Florida. I can show you out of the way places with fully developed CRE sitting empty. I guess maybe,possibly, it might be occupied sometime in the next 20 years...maybe.

Chris

"x writes:
i have lost everything"

You havent lost that negative attitude

x,

Sorry to hear that...nothing I can say that would help...

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I agree, Elvis. CRE has been "build it and they will come," meaning they used faulty assumptions of continued growth. That's the problem with assumptions about future performance.
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CSC, Late Stage Elvis is great metaphor for Late Stage Capitalism. Not a perty sight.
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It will not be long before a male porn star has bastardized the name of our leader.

Rocko Bam Ya
Brock O Mama
?

CSC,

Barry Kade.

Poor Obama, he gets himself elected just as the party has wound down.

Where in the hell does he imagine the wherewithal for his 'investments' is to come from?

from the Obama article above:

“These are crises you can no longer afford to postpone [addressing].”

Wow, that's a crucial insertion.

This admin is going to be fun to watch, but I hope it stays out of the way 'til Jan. 20 so we can all focus on what McCain's aides have to say about Palin.

It would be smart, IMHO, for Obama to lay low and not risk a promise going down in flames and jeopardizing his momentum.

JimPortlandOR writes:
Obama set to push ‘big bang’ reform package

Yeah, when you can not solve the problems at hand, go for the ‘big bang’instead. At least makes for good headlines.

Ciao
MS
Anonymous | 11.09.08 - 7:32 pm | #

MS,

I am really interested in how Barret Jackson does this coming year. The stuff I have seen on HDTV of Mechum in Indy looked like next year will be capitulation in the muscle cars(Maybe).

Chris

I'm a tellin' ya rabbit, you're looking at the wrong trends. Look at tent manufacturers. And what about what I think is the bellweather for cre, small industrial, which has traditionally had the lowest vacancy in large markets. Could be a problem figuring this out unless loopnet has managed to fill in the under 10,000 sq. ft. gap.

That said, did you ever do your own minor ubernerd post on how defeasance loans are tripping up the financing, refinancing, and sales of large properties? Maybe the bond people can weigh in on this?

Anecdote du jour: I went into a sporting goods store yesterday to get some fishing tackle.

Overheard at the register:

Customer: So what's the difference between this mossberg and a similar remington?

Salesman: No difference, except for the stock

Customer: But the camouflage... don't you have a black one?

2nd Customer: You'll want the camouflage when things get really bad and you're out in the woods.

There was a line of about 12 people waiting for assistance at the gun counter. A bunch were very unhappy they had to wait to purchase rifles and shotguns. One intense little man in camo-pants drove a salesman nuts trying one after another - trying to find the perfect sniper rifle.

Excessive pessimism and the lack of confidence currently grips the market and the economy. Government programs like TARP for businesses and something similar for distressed homeowners and the creation of federal jobs programs are a few of the actions that will help restore confidence necessary to rekindle the American entrepreneurial spirit. Then we will get out of this mess.
Be worried when people are greedy and be greedy when people are worried, says Warreen Buffett. I think he's right.

My argument would be that it isn't just new buildings but all the existing that were recently sold or refinanced. These loans will default the same as the new construction ones, when the building is vacant.

There will be lots of empty resteraunts, car dealers,Circuit Cities, and Linens and Things. What will fill these huge boxes?

"Obamageddon", hahaha. Good one.

"The only thing that really surprised us when we got into office was that things were just as bad as we had been saying they were."

-- John F. Kennedy

That's right X--check in and tell us how you are.

zoom writes:
Well if we could get congress to pass the 2007 Homestead Act and get people to move back into the Great Plains and Midwest we might be able to retool and produce a useful product.

I'd homestead in a minute if it was offered. And there was a job other than subsistence farmer. Though that looks to be a growth industry.

There have been active enticement programs for some time.

Free land in the heartland draws newcomers - Life- msnbc.com

Lured by an offer of free property, Juarez, 44, and her husband, Madecadel, 46, came to Kansas from Vallejo, Calif., two months ago. They went from an apartment where they feared letting their daughter out on her bicycle to a nearly new home with a big lawn, oak floors and a sense of utter safety.

More than a dozen communities in Kansas and Nebraska are giving away land or planning to do so as a way to staunch population declines and boost local economies.