Saturday, October 16, 2010
Having dug through the subprime mortgage mess, something at the back of my mind gave me that nagging feeling like an itch you can't reach. Some 288 thousand homes were foreclosed on in the third quarter of this year. There's an investigation about robo signing of foreclosure documents and possible fraud charges but that is not what was bugging me. While driving in Seattle early last year I noticed several empty lots once filled with buildings and gas stations and the like now fenced and idle. At the end of one block was one of those land use signs announcing condos coming in early fall 2009. When I passed this area early this summer nothing had been built. That got me to wondering about the state of commercial properties and their foreclosure status. I scanned the net for any news. Nothing. I knew a down town Las Vegas project had been stopped but knowing that commercial real estate can require a two year lead time I also knew there was big trouble brewing in commercial real estate.
Thanks to an article from fellow blogger Oso I find that the other shoe is about to drop. This will be far larger than the subprime mess and coincide with several other residential type mortgages about to blow up over the next two or three years that should be interesting or should I say horrifying.
Here's the crux of the situation concerning commercial real estate CRE.
# There is approximately $3.5 trillion of debt financing these commercial properties.
# Approximately $1.4 trillion of this debt comes due between now and 2014.
# The delinquency rate for all commercial backed securities exceeded 9% for the 1st time in history last month and has more than doubled in the last 12 months.
# Non-performing loans are close to 16%, up from below 1% in 2007.
As you can see the big boys have this problem well hidden from the general public. It's taken me a year to find any information on the subject even after numerous Google searches. If the subprime mess was the 800lb. gorilla in the room then the CRE mess is Godzilla waiting to devour the whole house. And neither of these problems has been properly addressed.
This well could be your Halloween trick because it sure isn't any treat. Have I scared you enough yet? Let me throw one more freight at you before I sign off. If you have been following the stock and commodity prices the last few months you'll note that the Dow has regained much of the ground it lost since 2007. You would think that was a good thing but it's not. It hasn't gone up this high for a rational reason. Not that it acted in a rational manner in the past. But the underlying factors of our economy aren't there. Consumer spending and confidence the main drivers of our economy are still at an all time low. I fear that with the high speed computer trading that's now in place, one hiccup and the whole thing could come crashing down. We did see a preview this past spring and these little monsters have no regard for anything with flesh and blood.