Wednesday, May 12, 2010

The next shoe to drop

In my neighborhood there's three places in foreclosure and one upside down and about ready to walk away from it. Which got me to thinking about commercial properties so I did a little research.

I was looking around the area at all the business that has gone out. It's strange in a way. Some places had been around for years while some places were just built in the last two years and sit there empty never having been leased. There's a 76 story office building in Seattle that's about 40% leased and now in default. There was a time when the Seattle skyline was filled with construction cranes. Now building lots are empty and plentiful. In researching all this, which was no easy task. I find commercial real estate is like the onion similar to the residential mortgages. They did the same thing. Bundled good and bad commercial loans into packages that were sold everywhere. You may recall them touting REITs (real estate investment trusts) some years back as a great investment. I considered such an investment for about two seconds and since they're nearly impossible to understand without some kind of real estate background I thought otherwise. I knew the residential loans were a joke when they offered 125% loan to value and interest only loans. What's in store for commercial loans the coming years?

Defaults expected

The financial side contains even greater risk. Fitch Ratings said it expects defaults to surpass 11 percent this year on commercial mortgage-backed securities. If that sounds like the kind of "innovation" that mushroomed the housing bust into a financial panic, it is. We just don't know the full exposure or interconnectedness of these derivatives. Or whether, as Fed Chairman Ben Bernanke once put it, the damage can be "contained."
(reported by Jon Talton Seattle Times)

Lastly there's 1.4 billion in commercial loans and about 1/2 are upside down which as everyone knows means that they own more than what the buildings are worth. And like it or not the taxpayer is going to get stuck with the bill. That's because of the bad paper that was sold to other banks bringing them to bankruptcy. The FDIC took possession of this paper when a bank folds effectively laying the burden on us the taxpayer. And I suspect that that is the reason congress won't separate the banks from from the investment firms because if they did they effectively kill the whole company in the process. Because as we all know they're still selling derivatives like junkies that need just one more fix.

Thanks for the links Oso but they didn't help there was only residential foreclosures on those sites.


The Blog Fodder said...

BBC on USA home repos

Ranch Chimp said...

I was a lil suprised at this posting Mr.Demeur .... because so far all I have been reading was how good of shape Seattle and Washington State were in economically, and as far as foeclosure's I read, was Arizona, California, Nevada, and Florida were about the worst. Also read the forecast's that predict that Washington and Seattle are looking good for future good .... am I missing something? As far as the forclosure's and what Congress will do the bank's and all the rest of this cesspool, I cant even put it all in word's what happened here, but I figure you have a good idea of what happened (lot of good Bush' deregulation done!) then you have a schlew of mortgages, no home's are worth what they even cost or what is owed on them, and the insurance companies, sold gambler's on the market insurance, on their speculative gambling investment endeavor's, that they now cant even pay the losses, this is such a complicated mess it's pathetic .... all the way down to pushing loan's/ home's to common working classes they knew couldnt be kept up, and rigging credit standing's, you name it. But good posting Guy ...... later.

Demeur said...

BF I only wish I could dig into some of the big banks books to see how things really are because you know banks tend to hide their losses.

RC We're a bit better off up here in that people were smart enough to stop building once there was even a hint of a meltdown. So what did that leave us? A whole lot of empty building lots in downtown Seattle. We're also lucky in that the economy is very diverse here. But we're still dependent on Boeing and Microsoft for many of the jobs and what they support.
We're not quite as bad as Az. Ca. or the rest those you mentioned but when you talk to people you find that they either aren't working or are working part time or on the other end have had their hours increased to cover those that have been laid off.

Randal Graves said...

The REAL Bruce Dickinson says more construction!

Ranch Chimp said...

Actually Dallas is supposed to be doing about the best as far as the nation on foreclosures, economy, etc. However .... I hear the same thing out on the street everyday, of people having to cover the job's that folk's were laid off from, also many saying that their hour's got cut back as well, downsizing on different avenue's, tighter budget's, the list goes on. I think what we have here is simply the perspective's and assessment's from the have's and have not's .... anytime any company can find an excuse (most) to give reason to downsize, trim corner's or anything that would make it more profitable, they will take advantage of the time, the so called "bad economic time's" is really a convenient excuse for the have's to cut back more of what the have not's receive or expect. As I told folk's here 5 to 7 year's ago or so, when gas was about $1.80 or so a gallon .... then the sudden skyrocket, when folk's were bitchin a couple year's ago ... it is conditioning us for the "new normal" ... and in a few year's after $4 to $5 gas .... you will be happy jumping for joy to only pay $3 a gallon, heh, heh, heh, heh, heh, it's "marketing". Just like unemployment figure's dont even show the million's that have stopped trying to look for work, I have wrote so many post's on this in the earliest part's of my journal on what to expect, and to my suprise, I was very accurate, I just simply looked at the long term and the math, which most dont, they look at the short and speculation talk .... which is no more than pep rally talk, or political horseshit that the masses/ herd's gobble up, thinking that one of either of these polarizing side's will save us from reality of economic's .... this is a country of the corporation's, by the corporation's for the corporation's .... heh, heh, heh, heh, heh. :)

I have been reading your stuff, and it seem's like you have a pretty clear picture of the reality I must say!

Later ...........

Oso said...

Hi Demeur,
Nice post, and sorry the links didn't work out. You're onto something which most of us don't think about because there's not a lot of media coverage on this.

Thanks for this. Sure bears further looking into.

BBC said...

My property is commercial property, I don't figure it's worth much in this economy, but I don't give a rats ass cuz I'm not planning on selling it anyway.

BBC said...

Why do you fucking monkeys always worry about what your property is worth? Buy a place and live and die on it, who gives a fuck what it is worth to others.