Lot’s of folks have been saying commercial real estate is the next shoe to drop, after residential property. Even it seems the trade association for commercial real estate developers, owners and related professionals. “We’re looking at $400 billion in loans maturing and unless we find a way to finance them it will take commercial down hard,” says Tom Bisacquino, president of the National Association of Industrial and Office Properties, now known simply as NAIOP.
Homeowners, car makers and banks have been asking for some of the Treasury Dept.'s $700 billion in bailout funds. Add commercial real estate investors to the list. Bisacquino says the association has been lobbying to secure $20 billion in loan guarantees from the Treasury. Perhaps another $200 billion more could come from the FDIC.
He points out though that this market is different from earlier busts such as the late 1980s when there was too much overbuilding of commercial property. Today its not a question of oversupply, just a lack of liquidity.
Biscaquino says the model is not all different from the terrorist risk insurance the government helped finance after 9/11. “The government could create this secondary market,” he says. “They’re not really writing a check.”
Bisacquino says the slump has impacted his association’s 18,000 members, who range from large publicly traded real estate trusts to small architectural firms. He says the number of companies that are members hasn’t changes but they are paying dues for fewer of their employees.
Foreclosures.com came out with its latest numbers today, a 63 percent rise in foreclosures for 2008, with a total of about 1 million throughout the year. The foreclosure process was begun on 2 million during 2008. Of those, 1.6 million were in the southern and western states as you can see by the chart above.
Alexis McGee, president of Foreclosures.com, believes the worst is behind the housing market. She’s says housing affordability is better than it's been since 1994, when a mortgage on a median-price home equaled 18 percent of the median income. Dropping interest rates on mortgages have improved this even more. Plummenting housing construction and a growing US population ultimately mean an increased demand for housing. Unemployment, while rising sharply, is still below where it stood in the 1990-1991 recession and well below the highs of the early 1980s.
“Don’t expect another tidal wave of foreclosures this year, either, just because more adjustable rate mortgages are due to reset,” McGee says. “Current mortgage rates are at 30 year lows and dropping. Those who qualify will be able to refinance and enjoy lower monthly payments, not higher ones. Those that can’t will end up either selling their homes pre-foreclosure or losing them to foreclosure. But I am anticipating our market can absorb this inventory.”
Talk about a real-estate deal gone bad. The city of Vancouver – which is the site of the 2010 Winter Olympics – wants to borrow roughly $370 million from British Columbia to finish construction of the athletes village. If BC doesn’t come through with the financing – which I assume they will – what does that mean for the games?
Vancouver was left holding the bag after the project lenders, led by the US hedge fund Fortress Investment Group, stopped advancing money to the developers last September amid rising construction costs and concerns that the economic slump would make it hard to re-sell the Olympic housing to homebuyers after the Games were over, according to this report from Reuters. The upshot is that the city could be on the hook for the entire $715 million it’ll take just to build housing.
If 2008 truly marked the end of consumerism, laissez faire capitalism, etc., etc., then 2008 might also have marked an end to the over-the-top effort of Olympic host cities to outdo the prior Games--so much so that the efforts became as much the story as the accomplishments of the athletes. Even before the 2008 Summer Olympics were finished, London had signaled that it couldn’t match the amazing ceremonies that opened and closed the Beijing games, and I think the Olympics going forward are going to have a much more subdued tone. It wouldn’t surprise me, frankly, if the Olympic organizers start going back to past hosts like Seoul, Atlanta and Salt Lake and asking them to stage future games, if new applicants are unwilling or unable to front the billions in costs it takes to stage an Olympics from scratch.
Only two cities--Atlanta and Los Angeles--have turned a profit from hosting the Olympics, and some like Athens were left with a hulking debt load and little residual economic benefit. (According to this 2005 article in The Wall Street Journal, which discusses whether hosting Olympic games are worth the effort economically, the city of Montreal only in recent years finished paying for the Games it hosted in the 1970s.)
This blog always took a very skeptical view of the prognostications of David Lereah, formerly the chief economist of the National Association of Realtors. His relentlessly upbeat take on the market is best captured by the title of his 2005 book: "Are You Missing the Real Estate Boom?" Along the way he earned a reputation as the Baghdad Bob of the real estate industry.
Just a couple of weeks ago my fellow Hot Property blogger Prashant Gopal wrote an item about how Lereah is now admiting his mistakes. He left the association in 2007. He now says he was pressured by the members to be upbeat about the housing market.
Today the Wall Street Journalhas a piece today about the mess he's found himself in personally these days. You may need a subscription to read it. Lereah now works from home, his former colleagues won't even return his calls. To keep some assemblance of a routine he still drives to McDonald's or Dunkin Donuts for breakfast each morning. He communicates with his wife, who also works from home, by email during the day.
He also ate his own cooking, buying six condos as investment properties during the boom. They're located in formerly hot markets in Washington, DC and Florida. The article doesn't go into detail but you can bet Lereah is under water on those.
Home building giant Lennar Corp. is finding itself in a war of words with Barry Minkow, the former stock swindler who now runs an entity called the Fraud Discovery Institute devoted to uncovering fraud at other companies. Minkow’s site released a 30 page report and Youtube video his morning suggesting that Lennar is a “Ponzi scheme” and a "financial crime in progress." Minkow even operates a standalone site called “Lenn-ron”—a play on Enron-- that dishes dirt on the nation's second largest builder.
By mid-day Lennar issued its own press release and called Minkow “an agent for a disgruntled ligitant, Nicholas Marsch III,” who's case, Lennar says, was recently dimmissed by a Califorina judge. The case dates back to a deal Lennar had with the San Diego developer Marsch in the late 90s. Marsch says he never saw any profit from the successful project. Minkow fully admits in the video he was engaged by Marsch whom he calls "our client."
Lennar further says Marsch and Minkow may have illegally tried to obtain information about the proceedings and that the company is investigating.
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BusinessWeek editors Chris Palmeri, Prashant Gopal, Peter Coy, and Dean Foust chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.
Talk about a real-estate deal gone bad. The city of Vancouver – which is the site of the 2010 Winter Olympics – wants to borrow roughly $370 million from British Columbia to finish construction of the athletes village. If BC doesn’t come through with the financing – which I assume they will – what does that mean for the games?
