http://globaleconomicanalysis.blogspot.com/2009/08/office-volume-down-50-to-91-industrial.html Question is .... At what price ? Slams the lid on the insolvency of US banks....
What exactly are you asking? Apparently it has something to do with bank holdings in CMBS or commercial paper or something along those lines. If you're saying that the CRE market will be the final nail in the coffin, well, I'm sure that will be true for some banks. Unless you're GS or JPM, this is going to be like a good old fashion death march where you're losing people more or less continuously. I don't remember the numbers exactly but I don't think this is too far off. Between the first MBS wave (sub-p, alt-a) and then next one (alt-a, option-arm), I think the total loses will be between $2.5 and $3T. I'm pretty sure CRE is less than half of that. Still nothing to sneeze at, but not an extinction level event either.
A lot of this reflects overbuilding. During the last 15 years, the saturation of things like RiteAid/Walgreen type drugstores, Home Depot/Lowes and many others have been staggering.
I'm intimately familiar, as in face-to-face, with commercial real estate, in no fewer than 5 states (Nevada, Arizona, Florida, California and Michigan), and I can confidently predict that the shakeout of the overbuilding, over-leveraging and underperforming office buildings, retail 'power centers,' shopping malls, lifestyle centers, professional/medical, and free standing single use retail (i.e. Walgreen's, CVS, banks, fast food) is going to be absolutely devastating. Consider these facts: 58% of commercial real estate mortgages taken out in 2005 were no principal, interest only, nothing down, 125% LTV, adjustable mortgages. Consider also that much of the land these properties were built on, alone, has depreciated 30% to 60%, and the structure replacement cost is 60% to 85% of what the original cost was when contractors and materials cost more. Consider that vacancies are skyrocketing, and rents are plummeting (many national retailers are demanding 15% to 50% rent reductions). Yeah, it's going to be absolute devastation in the commercial real estate market. There are brand new malls, built in just the last several months to 18 months, because the financing was obtained several years ago when banks were still lending money, that I've personally seen, that are literal ghost properties; big, bold, beautiful and either empty or nearly so.
OK so how do you make money off that? Short regional banks (due to their larger exposure than money centers banks and IBs) and REITS. And yet today RKH is up 2.5% and SRS is down almost 3%! Its never easy
Just wait for it. Take a que from Livermore. You see the opportunity, now wait for the market to begin to confirm.
I smell a new gov program in the air. Look at BAC and C, the REITs, regional banks. Somethings cooking, maybe to be announced before or after employment numbers, likely to be worse than expected, to assuage the markets.