Europe's Commercial Real Estate Timebomb?

Please read my latest post and leave your comments here:

http://pensionpulse.blogspot.com/2010/03/europes-commercial-real-estate-timebomb.html

Thank you,

Leo Kolivakis

Comments

[brown_hornet]

+1 hbjork

Is this good news?

http://www.dailyherald.com/story/?id=367295&src=109

[hbjork1]

First, "Thanks to Leo K. for the literate, high quality postings on this and his board."   I am a retired engineer (Actually consulting while trying to learn to defend my retirement funds) watching developments that are too often more bizarre than anything I have seen since WWII. This means the

Detroit scene, revelations in the financial press as well as personal written angry missives from  people I have known for a very long time who, normally, just don't talk that way.

On the subject of potential for inflation in housing, it won't be happening in Bloomfield Hills, Bloomfield Township, or the Detroit suburbs generally, for some time.  There is currently an oversupply of larger housing, built during the 2004 to 09 period by marginal eager newcomers to the building trade during the period of low cost money.  Technically sophisticated workers are in demand but money is tight and suppliers to the auto industry are having to bid lower.  

IMO, prophets of a slow recovery are on target. 

The good news is that the Blogosphere is giving voice and information to where it did not previously exist.  Of course, there is a lot of hot air but facts, texts and photographs are instantly available for the viewer/reader's personal evaluation.  Even the most sophisticated financial games are very hard to hide.

From the perspective of an "old guy", this access to reference materials and screed of good minds is a wonderful development; kinda exciting.

Good luck All!

[erich]

I lived in Detroit for a year in the mid-90s.  It was fascinating to see the grand old homes abandoned.  I have heard recently about plans for large scale urban agriculture.

[steve from virginia]

<blockquote>That's why they're investing in "inflation-sensitive" asset classes like real estate, infrastructure and TIPS.</blockquote>

If pensions are investing in TIPS how can inflation ever outrun service costs? How will inflation outrun indexing of retirement funds such as Social Security/Medicare? How will inflation escape the notice of bond buyers? The inflation strategy is a non- starter.

Where is the Fed cash, by the way? This country is starving for cash. I was talking to a person I have done business with for over 30 years and she ticked off the companies out of business over the past few months. This is in a currently prosperous area of the country, Northern Virginia.

If pensions are investing in real estate NOW, then pensions are flat- out doomed. All the 'second tier' RE speculators will get wiped out when the ongoing deleveraging leg gains momentum. Just watch, the same pensions will be dumping their property on the market at the same time to raise almost non- existent cash. This will lead to a property panic as banks strive to unload REO for anything left over.

This recession isn't almost over, it's just getting started. Property won't be at bottom until the words 'Real Estate' in polite conversation causes women to faint. The same holds true with 'stocks'. Bottom is in when revulsion takes hold, not opportunism.

There are few (none) opportunities in these markets only dangers. There is no hedge against deflation.

In a bear market where every asset is losing value, who is going to take the other side of your short? (A pension fund, maybe?)

[erich]

TIPS returns may not outrun service costs, but for average investors, if one expects inflation, what is the alternative?

There may be no right answer, only less worse answers.

As to how bad it will get, extraordinary measures are taken to avoid widespread bankruptcies, such as restructurings.

[erich]

Leo, seeing the long term problems as you do, how do you maintain short term bullish?

Along that line, isn't the most likely response inflating out of a default?  If so, it would seem real estate ownership, with long term fixed rate debt, could do very well.

er... not "very well" in normal terms, but relative to a lot of other actions.

[Leo Kolivakis]

Pensions are betting the Fed will engineer inflation through asset reflation. That's why they're investing in "inflation-sensitive" asset classes like real estate, infrastructure and TIPS. My concern is what if this is a long U shaped recovery in real estate? Or worse, what if we head into a protracted period of deflation?

[erich]

I would not have thought it until 2008, but it seems the central banks and the Treasuries will do absolutely whatever it takes to try and inflate away the problems.  There is no tolerance for economic resettling.

Eventually it can't work, if there is too much money essentially money will be self reinforcingly worth less, won't it?

I think attempts will be made to create bubbles until it stops working.  Is a fixed income the last bubble, before the trouble?

Just a guess.

[three chord sloth]

"...but it seems the central banks and the Treasuries will do absolutely whatever it takes to try and inflate away the problems.  There is no tolerance for economic resettling."

Well, yeah.

Have no illusions... what is at stake is far more than a grinding recession. The entire structure of the past 50 - 60 years of the West's economic and social development is riding on these problems magically disappearing.

[wake the roach]

There is no stopping the inevitable, governments around the world missed their only chance of ever recovering when they propped up the banks toxic balance sheets instead of nationalising them, allowing defaults to clear the trash and allow assets to find equilibrium.

When the citizens of this world have no more capital left to feed this wealth consuming beast, it will feed on the ones that gave it life.

Its aliiiiiiiivvvv... eh...

[Rainman]

Timmay should get ready to pump another $ 100 billion ObamaBucks into the IMF. The Extend and Pretend schemes are getting a bit frayed at the European edges.