Posted on 04/23/2009 6:49:58 PM PDT by TigerLikesRooster
The Looming Crisis in Commercial Real Estate
By Michael Weisskopf
The bailout may be coming to your local mall.
The credit crunch has thus far focused on the residential mortgage mess. But with $1.3 trillion in loans to shopping centers and other commercial properties coming due between now and 2013, another time bomb is ticking. In a report scheduled for release on Wednesday, Deutsche Bank estimates that at least half the loans — and two-thirds of those packaged and resold as securities — will not qualify for refinancing. As a result, many borrowers will likely default, leading to losses on securitized mortgages of $50 billion or more and losses of at least $200 billion on commercial real estate loans overall, according to Deutsche analyst Richard Parkus, who authored the report. "People are only now beginning to realize there is a looming crisis," Parkus told TIME. (See pictures of retailers which have gone out of business.)
Financial analysts believe government incentives to banks to extend existing commercial real estate loans will be necessary to limit the damage. The Federal Reserve and Treasury Department are considering a number of options. The alternative is last week's bankruptcy of General Growth Properties, the nation's second largest shopping-center group, which could not refinance, even though many of its properties have positive cash flow.
(Excerpt) Read more at time.com ...
OK, toss a couple of trillion dollars. What the heck.
Ping!
A few billion here and few billion there, it’s not real money until it hits a trillion.
I’m almost hoping my husband gets laid off....then we won’t be supporting the sham with our tax dollars.
Yes, holding onto a job in the current atmosphere creates its own problem: taking heavy tax load.
they didn’t put very many democrats on their list.
barney frank, chris dodd, chuck u schumer et al are absent.
“They” will want your very blood.
Well....YOU know HOW they’ll get “my blood” don’t ya!
Thanks for posting. Very interesting.
Take care of your family first and be prepared.
I don’t think we have come close to the bottom of the socialist sinkhole we find ourselves in. Unfortunately, most of the individuals most responsible are in charge now. We will not hear the truth about where we are and/or how we got here because the truth would expose their own corruption and responsibility for this mess.
We have been sold out for career politicians, liberal lending (cause everyone deserves a nice home, right?), and Wall-Street greed.
Stop and think about this for a second...... many were outraged at the million dollar bonuses paid out to AIG executives following the bail-out but we never hear about the ENRON accounting practices at Fannie and Freddie that allowed Franklin Raines and others (closely tied to this administration) to walk away with tens of millions of dollars.
They prosecuted Sen. Ted Stevens for a small amount of questionable gifts yet nobody is investigating Sen. Dianne Feinstein after she funneled 50 million dollars to FDIC who promptly rewarded her husband a contract worth tens of millions of dollars. The cherry on top is the fact that her husband bought shares (think I have this right) in business related to this same deal for $3.00 and those shares are now worth $6.00 each.
Is’nt it amazing?
The stench from D.C. is overwhelming these days.
The only real money is the 100 million dollars that Obama is going to save us by cutting government spending (extreme sarcasm).
oops 50 billion not million
can’t tell the difference anymore
...I thought this photo was creepy...I wouldn’t want to be a lone security guard, late at night, in an empty Mall.
http://www.time.com/time/photogallery/0,29307,1884100_1854617,00.html
If you owe the bank a few million dollars, the bank owns you.
If you owe the bank a few trillion dollars, you own the bank.
The marketplace is already working quite well, the CRE banks and loan holders have been extending loans as fast as possible since the holders of the paper in the vast majority of cases have no industry knowledge on how to own and operate brick and mortar CRE. Where the loans are being called in, the lenders have pre-positioned viable alternative asset management.
Collectivization through government diktat and Democrat crafted laws will only come about if the remaining CRE property management companies create monopolies, or more likely if the banks decide they can plead poverty through their lobbyists and force the US government officials and politicians to make US taxpayers cover the losses at a higher book value and lower loss ratio than if the banks allowed the already highly regulated market to play itself out and find new price points for the trillion of CRE mortgages/loans out there.
The free market WILL function here. Book profits through taxpayer subsidies will NOT sprout competent phalanxes of property management professionals out of the magical Obama pixie dust. Subsidizing the remaining property management companies to buy impaired properties with US taxpayer dollars without US Taxpayers seeing profits from the ventures is outright plundering of the US Treasury.
On the other side, in defaulting CRE properties you can not make property managers into indentured servants to loan holders through Federal law.
It is the same fallacy Geithner spewed in front of Congressional Committee trying to say residential RE prices were temporarily impaired, and with proper US taxpayer support the residential RE market would return to bubble level pricing and the banks and US Taxpayers would make money.
The only sane and morally justifiable move the US Federal government can take is adjusting the tax code so banks taking these CRE losses can extend the periods of the write downs over many years, such as was done in part in Japan, so the banks don’t exceed their leverage and gearing ratios. This is a (relatively in these days) minor change in the tax code. It will cost the US taxpayers only the loss of interest on offset taxes during the longer write off period.
All over the US CRE world there were corporate employment pyramids that become excessively top heavy, as this is pared down the productivity of the sector will increase, as it should be, any moves to do otherwise will be a make works program for Socialist visible hand economic and monetary policy, and will cause further drains on the viability of the US CRE sector.
That’s how I see it.
What wild you do with 500 k cash
“If there is no Jason or Chuckie inside, it will be fine.:-)”
....you gotta figure there’s a B-movie producer in Hollywood pitching just such a script right now.
Odd how the MSM isn't picking up on the corruption at Fannie and Freddie... /s
When the worst of the commercial real-estate debacle becomes obvious to most, if Obama Inc attempts to con the public by foolishly stating it's nothing to be concerned about...since Obama will have Washington's $$$ printing presses running around the clock, feeding the farce economy, in addition to the fanatical Obama humanoids screaming, those big tall buildings should all be torn down since they do not fit into their phony green agenda.
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