Wednesday, July 22, 2009
The Commercial RE time bomb
Commercial RE is something I have always wanted to invest in. After reading this article I wonder. 2 to 3 trillion in bad commercial RE debt that must be turned over. WOW that's a big number. I am hoping to be able to take advantage of some firesale pricing when it hits bottom, but based on Denningers opinion it may never come back. I have seen the for lease signs popping up all over recently. Even in class A space in very prominent areas there must be a 25% vacancy factor. As things continue to get worse I wonder how low it can really go. I see a bunch of available industrial and warehouse space. Who the hell is going to be looking for that type of space the next 5 to 10 years. What about all the car dealerships going out of business. What type of business, other than a car dealer has use for this type of space. What about all the Big box retail stuff. Who is going to take over the vacated K Mart building, or empty ACME supermarket. What will happen to all the employees of these vacated ventures? Their lack of spending will further continue the downward spiral. Never in my lifetime have I seen such an economic decay. The media is seeing light at the end of the tunnel. I wonder if it's an oncoming train.
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Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.
ReplyDeleteBernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S.
It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.
U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market’s peak, Moody’s Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month.
“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”
One of the main issues for the industry is that the market for debt backed by commercial mortgages “has completely shut down,” the Fed chief said yesterday.