BECKLEY— In discussion on another missive there is some talk of commercial real estate and it’s problems. I’ve heard this for a while now and the numbers for commercial real estate are dismal when you look at them but they’ve been bad for a while.
Now the $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn’t been pretty….
…The commercial-real-estate market could yet be salvaged by an improving economy and bailout programs coming out of Washington. In addition, capital markets are starting to ease for publicly traded real-estate investment trusts. Since March, more than two dozen REITs have managed to raise more than $13 billion by selling shares.
Still, most of the $6.7 trillion in commercial real estate is privately owned. Also, it is unlikely commercial real estate will benefit much from an early stage of an economic recovery. What landlords need is occupancy and rents to rise, and that means employers have to start hiring and consumers need to shop more. So far, there are few signs this is happening.
Wasn’t the TARP money and the bank “stress tests”, which were silly in my opinion, supposed to be about bank stability. A commercial piece of property sitting empty has already affected the economy when it closed. What will these affects be when they can’t pay their loans anymore. I know their have been warnings of crashing and closing banks across the country in the coming year but I wonder how this will affect main street? After all FDIC insurance should stem the loses to us regular Joes. And I stay far away from financial companies for investing after all I think more then half their assets are made up of commercial loans on average.
I still wonder as to the structure of this “crisis” though? Let’s say this is right and 702 banks fail how many employee’s is that? The banking industry makes up about 1.8 million as a whole according to BLS data. What is the cumulative affect on unemployment?
As of June 2009 the FDIC insured 8,195 banks. This is a 8.6% failure rate predicted above. This means only an additional 154,800 in unemployment at the rate unemployment is clocking along right now that’s not that big of a deal. Of course this will trickle through out the economy and is a problem. Even if it doubles it’s impact to around 300,000 over the next couple of years it’s still bad.
How will this affect inflation? Will we continue along in a deflationary cycle. As I think unemployment first has to stop it’s increases before inflation hits? Will the government spend more money? Causing inflation to be EVEN worse but just later then I’ve thought? What about other industries I’m sure they’ve been down sizing and right sizing to operate in the new paradigm of low consumer spending and unemployment but have other industries done enough cost cutting? Anybody come across a good analysis of this stuff lately?
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
I think the impact of this crisis will be felt on the construction industry, which is an enormous employer and was one of the premier employers during the boom from 2002 – 2007.
Of course, part of the reason we had a boom was inordinantly cheap credit. So this is probably a needed correction.
But nonetheless, many of the jobs we have lost that we need to make up were construction-related jobs.
My understanding is that a lot of construction, etc. is more likely to be financed by local and regional banks. TARP and these other government programs were focused on the bigger banks, less so on the littler ones. Thus, the littler ones still need capital and are severely tightening up lending, which is driving down construction. (The big ones never really needed the TARP capital anyway – but that’s another debate altogether).
Of course, general economic downturns cause construction to go down, b/c companies are less willing to take a gamble on a new plant, strip mall, etc. in a downturn.
But this will slow the upturn. People take more gambles if they think we’re coming out of a recession- buy and build stuff while it’s still cheap in anticipation of the turn. But if they can’t get financing to do so, then it slows everything down.
My current client is going to be adversely affected by this. Evidently, the construction industry is going to be down 15 percent year-over-year next year, many analysts are predicting. That’s a lot, given how bad 2009 was.
Anyway – I think the impact of this bust will reverberate on for a while longer still.
http://finance.yahoo.com/news/Capmark-Financial-files-for-apf-2710240959.html?x=0&sec=topStories&pos=main&asset=&ccode=
It begins!!!!!!!!
Saw that. Pretty interesting. Curious how far it ends up going…
Read this today.
http://www.marketwatch.com/story/dollar-slips-on-china-reserves-report-2009-10-26?siteid=rss&rss=1
I worked (what is possible with 4 kids) all weekend on trying to come up with a strategy to re-balance my portfolio. I read through about 15 10Q and as many 8Ks too. Still have to find some good international stocks denominated in anything but the dollar and not directly tied to the American consumer who is slowly dying…ugh. Hard work!
Another domino falls. However, it is merely a causality of large economic woes. Had the overall economy been sustained through out this previous downturn, Commercial Real Estate would have less meaning. When the residential real estate market collapsed, it sank with the end consumer; in a consumer economy everything else would necessarily go with it.
Yep – could get ugly from here on out.
http://www.marketwatch.com/story/fdic-number-of-troubled-banks-rises-to-702-2010-02-23-10200?siteid=YAHOOB