Commercial real estate poised for a very serious crash

[EscortBiz]

for those especially in CA that are looking for commercial real estate for projects or investment this might be an opportunity (not yet but real soon)

http://biz.yahoo.com/ap/081127/meltd...ming_soon.html

Meltdown far from over, new mortgage crisis looms
Thursday November 27, 1:17 pm ET
By Matt Apuzzo, Associated Press Writer
Malls, hotels next victims in mortgage crisis as signs show meltdown far from over

WASHINGTON (AP) -- The full scope of the housing meltdown isn't clear and already there are ominous signs of a new crisis -- one that could turn out the lights on malls, hotels and storefronts nationwide.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.

"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

"It's a toxic drug and nobody knows how bad it's going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year -- 2010 and 2011 totals are projected to be even higher -- many property owners won't have the money.

Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida -- states with a high concentration of mortgages in the securities market, according to Fitch -- are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.

"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything."

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

"The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

"He's created havoc in the marketplace by changing the rules," Rosen said. "It was the stupidest statement on Earth."

The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don't have to declare huge losses whenever the market declines.

But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, "There's going to be a lot of pain going forward."

[JFK]

here we go again

[_Richard_]

yippee...

[tranza]

yea, "here we go again!"

[[db]]

What part of depression don't you people understand? Everything is going to very seriously crash.

[$5 submissions]

Originally Posted by [db]

What part of depression don't you people understand? Everything is going to very seriously crash.

If it hasn't already. The only thing unclear is where the "bottom" is.

When I lived in the US, one of our neighbors bought their house during the last real estate bust in Sourthern California. They bought their home in 1992. It took almost 10 years for it to climb back to the price they originally bought at. 10 years "under water" mortgage. Very sobering story to keep in mind in today's real estate market. Apparently, AZ and NV markets are facing the same situation.

[crockett]

Originally Posted by $5 submissions

If it hasn't already. The only thing unclear is where the "bottom" is.

When I lived in the US, one of our neighbors bought their house during the last real estate bust in Sourthern California. They bought their home in 1992. It took almost 10 years for it to climb back to the price they originally bought at. 10 years "under water" mortgage. Very sobering story to keep in mind in today's real estate market. Apparently, AZ and NV markets are facing the same situation.

Yea man that's why I don't want to buy yet. I've been waiting over a year now and I'm damn sure getting tired of renting. However even though there are some good deals out there I don't think we have hit bottom yet.

[[db]]

Originally Posted by $5 submissions

If it hasn't already. The only thing unclear is where the "bottom" is.

Indeed. And the more of our money we let them give away getting nothing in return, the lower the potential bottom gets.

Originally Posted by $5 submissions

When I lived in the US, one of our neighbors bought their house during the last real estate bust in Sourthern California. They bought their home in 1992. It took almost 10 years for it to climb back to the price they originally bought at. 10 years "under water" mortgage. Very sobering story to keep in mind in today's real estate market. Apparently, AZ and NV markets are facing the same situation.

Very true, sobering indeed. Hopefully people with negative equity now and in the near future will only have to wait ten years. I worry it could be longer, if it will ever fully recover. We are facing something much worse than we have ever seen before. I have many friends and relatives facing this reality, as I'm sure we all do.

[[db]]

Originally Posted by crockett

Yea man that's why I don't want to buy yet. I've been waiting over a year now and I'm damn sure getting tired of renting. However even though there are some good deals out there I don't think we have hit bottom yet.

Renting is a great situation to be in now. Do not buy property until it goes down to about 60% of what it is today. Almost anywhere in the US.