Commercial real estate problems

[Sarge]

It is getting ready to get ugly,

http://www.bloomberg.com/apps/news?pid=20601087&sid=avp8qF3bDuyc&refer=home

http://www.azcentral.com/arizonarep...es/2009/02/07/20090207biz-commercial0208.html

I talked to two owners of dining establishments. Times are getting tougher. One has 3 and one has one. They are long time great eating places and at the right prices.

One I talked to one month prior and then again this week and he is getting very worried. The other man I talked to yesterday said he is expecting it to be slow for some time. He is expecting less on Valentines Day this year.

The EU also has 170 Billion in commercial real estate being reviewed.

 

[Agent CSL]

Yeah, a local 7.7M commercial building that was suppose to be a gem in Monroe is now bankrupt and being auctioned off. Not to mention the Snohomish Station in Snohomish that can't get business for shit. I expect that to go anytime soon. Except for Bridges Pets, I like that store.

 

[Sarge]

I think this is going to be the next major hit. The leverage they used is likely to bite them when they try to refinance. I doubt the banks are going to come up with the money they are hoarding.

If they don't, there is going to be an impact on all who hold investments in the CMBS market. There are a lot of pension funds that might be poised for a second hit. Calpers already walked away from a property across the street here in AZ.

A good chunk comes due this year and more next year.

What is our dear govt. going to do after they pass the bailout, and then the commercial real estate market explodes?

The news releases are almost hitting fever pitch on the potential. Every downgrade will cost them more to refinance and there are a bunch of downgrades getting ready to hit.

 

[slamminshaun]

I'm a commercial loan officer for a major US bank. I can definitely attest to the problems in commercial real estate.

The recession means storefronts are making less money, which means they cannot afford to pay the full lease payment to their landlord, which means the landlord cannot afford to pay me the full mortgage payment. I tighten the screws on the landlord, he tightens the screws on his tenant, and the tenant leaves for another (cheaper) location. Landlord gets nothing, eventually I get nothing. This has been going on for about 6 months, but really started ramping up the past few. Every week, my problem loan list gets longer and longer, no end in sight....

 

[gaazn]

Anyone who bought at CAP rates of 4-5% or less are screwed. Meanwhile, the conservative investors who bought at 8% or higher CAP rates are raking in the cash flow and should be able to refinance easily.

 

[Cowlesy]

Yeah we've been curing a lot of covenant breaches with equity injections. It's nice to work for a company that thinks about these things prior to investing just incase something like this occurs.

Prudent investors will survive the downturn.

I bought some SRS up in the 90's, and I am hoping that some earnings revisions will demonstrate that the common equity return in many of these REITs is very unattractive at this valuation which will pull down the Real Estate Index.

 

[Sarge]

Thank you for the feedback. Please keep us up to date if you can.

I found this on Minyanville. I am pasting so you don't have to listen to the music,

"I hate to break the news, but Moody's and S&P have already downgraded 9,000 Alt-A tranches this week alone, and this will lead to many tranches not paying (many went to CCC or D); hence, they're becoming impaired and have to get marked down anyway. Then, yesterday, Moody's put $302 billion of senior CMBS on watch negative, and expect 4 to 6 levels of downgrades.

"Furthermore, Moody's said to expect 30% default rates in option ARMs from 2006-2007 vintages.

"So, unless jobs get recreated (I doubt that will happen with any stimulus plan), those hoping for a rally and economic recovery based upon a change in 'mark-to-market rules' are dreaming."

9K downgrades on Alt A. If they blow up at the same time as the CMBS we are in for a major shock. Throw on any CDO, CDS and SIV defaults and they will not be able to print enough money.

 

[slacker921]

SRS has been fluctuating 8% or more in a single day. Sometimes it's better to sell at a loss and start taking little gains on multiple trades rather than waiting for it to come back up. SRS isn't for holding - it's for quick trades. just my two cents..

And I'm in/out/in SRS because of what I'm seeing here - where the downturn hasn't really hit yet... there are NEW commercial properties that have sat empty for over a year. Lots of them. There are loads of places now that have "for lease" signs. It's just getting started.

 

[slamminshaun]

And I'm in/out/in SRS because of what I'm seeing here - where the downturn hasn't really hit yet... there are NEW commercial properties that have sat empty for over a year. Lots of them. There are loads of places now that have "for lease" signs. It's just getting started.

And the best part is....there's MORE under construction!

 

[Sarge]

Take a look at this filing. Note they are going to try and get out under the leases,

http://www.downtownshortpump.com/2009/02/09/short-pump-based-sk-menswear-files-for-bankruptcy/

 

[Sarge]

Several things. Moody's just downgraded some CMBS. BoA 1.6 Billion and JPM another 1 B.

And it is just starting. Now throw in the following,

http://www.examiner.com/x-1760-Baltimore-Investing-Examiner~y2009m2d9-Beware-Option-ARM-Resets

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=473895&in_page_id=3

Wait until we get the rest of the CMBS downgrades.

Some are starting to wake up what is coming down the pike.

Now the Fed might back off and buy mortgages because the Bond Market is testing them.

Yep Fed, just buy more Alt A loans that are getting ready to go under.

I will be on a plane when they come out with their brilliant plan tomorrow but, no matter what the plan, we are in trouble.

CNBC just said the public doesn't trust what they are being told. BINGO!