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Guest Post: Consumer Deleveraging = Commercial Real Estate Collapse

Tyler Durden's picture


Submitted by Jim Quinn of The Burning Platform

Consumer Deleveraging = Commercial Real Estate Collapse

There is a Part 2 to the story of  Consumer Deleveraging that
will play out over the next decade. Consumers will deleverage because
they must. They have no choice. Boomers have come to the
shocking realization that you can’t get wealthy or retire by borrowing
and spending. As consumers buy $500 billion less stuff per year,
retailers across the land will suffer. To give some perspective on our
consumer society, here are a few facts:

  • There are 105,000 shopping centers in the U.S. In comparison, all of Europe has only 5,700 shopping centers.
  • There are 1.2 million retail establishments in the U.S. per the Census Bureau.
  • There is 14.2 BILLION square feet of retail space in the U.S. This
    is 46 square feet per person in the U.S., compared to 2 square feet per
    capita in India, 1.5 square feet per capita in Mexico, 23 square feet
    per capita in the United Kingdom, 13 square feet per capita in Canada,
    and 6.5 square feet per capita in Australia.

Despite the ongoing recession and the fact that consumers must reduce
their spending over the next decade, irrationally exuberant retail CEOs
continue their death march of store openings. Below are announced
expansion plans for some major retailers:

  • GameStop – 400 new stores
  • Walgreens – 350 new stores
  • Dollar General – 315 new stores
  • Ashley Furniture – 300 new stores
  • Target – 128 new stores
  • Starbucks – 100 new stores
  • Best Buy – 55 new stores
  • Kohl’s – 50 new stores
  • Lowes – 45 new stores

Retailers expanding into an oversaturated retail market in the midst
of a Depression, when anyone without rose colored glasses can see that
Americans must dramatically cut back, are committing a fatal mistake.
The hubris of these CEOs will lead to the destruction of their companies
and the loss of millions of jobs. They will receive their fat bonuses
and stock options right up until the day they are shown the door.

All of the happy talk from the Wall Street Journal, CNBC and the
other mainstream media about commercial real estate bottoming out is a
load of bull. It seems these highly paid “financial journalists” are
incapable of doing anything but parroting each other and looking in the
rearview mirror. Sound analysis requires you to look at the facts, make
reasonable assumptions about the future and report the likely outcome.
Based on this criteria, there is absolutely no chance that commercial
real estate has bottomed. There are years of pain, writeoffs and
bankruptcies to go.

Let’s look at some facts about the commercial real estate market and then assess the future:

  • The value of all commercial real estate in the U.S. was approximately $6 trillion in 2007 (book value, not market value).
  • 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.

Do these facts lead you to believe that the commercial real estate
sector has bottomed, as stated in the Wall Street Journal? The Federal
Reserve realized the danger of a commercial real estate collapse to the
banking system over a year ago. They have encouraged banks to extend and
pretend. The website describes in detail what has occurred:

What has happened is the Fed has
allowed this shadow monetization of the debt and banks let borrowers
roll over CRE debt without even making payments in many cases!  Think of
an empty shopping mall.  There is no buyer for this in the current
market.  So why would a bank want to foreclose on the borrower? 
Instead, they pretend the asset is worth $10 million while the borrower
makes no payment and the Fed keeps funneling money into the banking
system.  In the end, the value of the dollar gets crushed and you end up
bailing out the banking system. Commercial real estate has collapsed
even harder than residential real estate.  This market is enormous in
terms of actual debt.  There is no official bailout on the books but it
is occurring through a slow and deliberate process.  Banks know that
they are essentially insolvent and they are dumping this junk onto the

 This grim story began between 2004 and 2007. The horrifying ending
will be written between 2011 and 2014. Commercial real estate loans for
office buildings, malls, apartment buildings and hotels usually have 5
to 7 year terms. If you thought the debt induced bubble in real estate
only affected residential real estate, you are badly mistaken. Before
the boom, a normal year would see $100 billion in commercial real estate
transactions. Between 2004 and 2007 there were $1.4 trillion of deals
done, with 2007 reaching a peak of $522 billion of commercial real
estate deals. Shockingly, the Wall Street banks, run by MBA geniuses,
loaned developers a half trillion dollars at the very peak in the
market. Sounds familiar. Thank God the taxpayer has bailed these
Einsteins out so they could live to make more bad loans and collect big
fat bonuses.

Commercial real estate prices rose 90% between 2001 and 2007, driven
by the loose monetary policies of the Fed and complete lack of risk
management on the part of the banks making the loans. Knuckle dragging
mouth breather developers built malls, apartments, offices and hotels
with abandon as billions of dollars rained down on them from Wall
Street. The consumer delusion of debt financed wealth led to the
developer delusion that 100% occupancy and increasing rents for all
eternity were guaranteed.

Commercial real estate prices have dropped 42% in just over a year.
This means that the $6 trillion value of all the commercial real estate
in the country has dropped to $3.5 trillion. The debt remained in place.
The billions in debt issued in 2003 – 2005 is coming due between 2010
and 2012. The underlying assets are worth billions less than the debt
that must be refinanced. Commercial loan payments by owners can only be
made from cash flow generated by rental income. A key requirement in
generating rental income is tenants.


Let’s examine the current state of vacancy rates for offices,
shopping malls and rental properties. The current office vacancy rate of
17.5% is the highest since 1993 and is just below the all-time high
18.7% in 1992. The WSJ has concluded, with no data or analysis, that the
vacancy rate has bottomed. As the employment data proves, companies are
not hiring employees. New companies are not being formed. Government
mandates and regulations regarding healthcare and uncertainty about
taxes will keep the formation of new small companies at a minimum.
Conglomerates continue to ship jobs overseas. Part 2 of this Depression
will drive more companies out of business. Office vacancies will remain
at record levels for the next five years. 

Office Vacancy Rate Q3 2010

Mall vacancies between 9% and 11% are at record levels. There is
absolutely no chance that these vacancy rates decline over the next few
years. With consumers deleveraging, wages stagnant, unemployment high,
and retail oversaturation, there are thousands of retail stores destined
to close up shop. Ghost malls are in our future. They will come in
handy as homeless shelters and soup kitchens. Mall developers will be
defaulting in record numbers.

Mall Vacancy Rate Q2 2010

Apartment vacancy rates peaked at 11% in 2009, the highest level in
history. With millions of vacant homes and millions of available rental
units, rental rates will stay low for years. The cashflow of apartment
developers will under stress and will lead to more loan defaults.

Rental Vacancy Rate Q2 2010

Based upon the current rising delinquency rates of 15.7% for
commercial real estate loans and 9.05% for CMBS, there is no bottom in
sight. Only raging mindless optimists like Larry Kudlow could ignore the
facts and conclude that all is well in commercial real estate world.
Banks pretending that the loans on their books aren’t worth 40% to 50%
less, while also pretending that borrowers with negative cash flow can
make loan payments, is not a solution. It is a Federal Reserve
encouraged fraud. Allowing loans to be rolled over with no hope of ever
being repaid will only prolong the pain and delay the inevitable. 

The facts are that hundreds of billions in commercial loans are
coming due, with a peak not being reached until 2013. If banks were to
properly account for the true value of these loans, hundreds of regional
banks would be forced to fail. This is unacceptable to government
authorities. They will insist that the fantasy continue. Banks and real
estate developers will pretend to be solvent, hoping the economy will
miraculously repair itself and eventually make them whole. I understand
these bank CEOs and delusional developers also believe in Santa Claus,
the Easter Bunny, and the Efficient Market theory. It seems our entire
financial system is based upon debt, fantasy, fraud, and delusion.


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Thu, 10/07/2010 - 01:42 | 631403 Hephasteus
Hephasteus's picture

10/10/10 and dad is bringing back the bullshit

America's are going to spend 447 billion dollars this holiday season. Srsly!!!

That's 1500 bucks per man woman and child. Take out the 30 million unemployed and it's 1650. It's going to be an ounce of gold christmas.

Thu, 10/07/2010 - 02:53 | 631483 DavidPierre
DavidPierre's picture

Smokey Quinn understands nothing of these BANKER/CIA/MAFIA/CEOs and their ilk. 

Nice fancy photos, charts and graphs... but he is more delusional than the commercial developers ever thought of being. 

Smokey Quinn believes the "Official" 9\11 Lies, Santa Claus, the Easter Bunny, and the Efficient Market theory.

It seems Smokey Quinn's entire financial belief system is based upon intellectual deficit, fantasy, fraud, and delusion.

Smokey Quinn blows more smoke than Suzy Welch.

SMOKEY QUINN is up to all sorts of tricks ... cut and paste... plagiarism... but especially obscene racism, posted under his various AKA's...etc.



Beware!...  Stay out of his manure paddock/blog as Smokey Quinn has a strong sexual preference for his sheep. 


Thu, 10/07/2010 - 02:56 | 631487 Hephasteus
Hephasteus's picture

And the cheese slides off another cracker.

Thu, 10/07/2010 - 04:35 | 631514 DavidPierre
DavidPierre's picture


If you really want to wallow in some of the shit Smokey Quinn was running at his blog go back and check out one of his classic racist rants.


I won't repost it here. 

Since I posted it on ZH, Smokey Quinn later deleted HIS RANT off his sheep paddock site. 


Jason Rines, Smokey Quinn's former webmaster...

"Smokey and Jim are the same people, yes. I mapped both the I.P.'s back to his office at Wharton."



Hide yourself in shame MORON!    But...

You will always have 'your sheep' who will still respect you in the morning.



Thu, 10/07/2010 - 09:01 | 631878 John Bigboote
John Bigboote's picture

If he is racist does that mean he is wrong about CRE?

Thu, 10/07/2010 - 11:13 | 632218 Hephasteus
Hephasteus's picture

I still don't know why he's blowing this crap at me.

Hey have you seen John Smallberries? He hasn't reported in for a while.

Fri, 10/08/2010 - 09:50 | 634909 John Bigboote
John Bigboote's picture

haha! John Yaya says hi.

Thu, 10/07/2010 - 09:44 | 631983 Jim Quinn
Jim Quinn's picture

How sad is your pathetic little life that you must troll discussion boards spewing your hate? I guess being an American traitor really must wear on the conscience. Time for you to go back and watch JFK for the 40,000th time and pray for another 9/11. Enjoy your pathetic little life in your shack deep in the woods of British Columbia where men are men and sheep are scared.  

Thu, 10/07/2010 - 11:09 | 632203 laurie
laurie's picture

Anyone who has read Jim Quinn's blog for the past year or two knows that this DavidPierre (DP) guy is a nutjob who lies and spams with nasty comments and photos.  This is because Jim disagrees with DP, who thinks 9/11 was pulled off by our own government.  Honestly this obsession with Quinn makes DP look like a very sad, pathetic human being.

Thu, 10/07/2010 - 12:43 | 632598 i-dog
i-dog's picture

"Jim disagrees with DP, who thinks 9/11 was pulled off by our own government. "

Then Jim's as dumb as a doorpost!

Thu, 10/07/2010 - 12:38 | 632578 Smokey1
Smokey1's picture

Of the thousands of members of Jim Quinn's site, many comment regularly. All of the regulars are keenly aware that Quinn and Smokey (me) are two different people. David Pierre is aware of that also, but DP does not have much regard for the truth. Quinn allows an extremely wide range of free speech on his site, and occasionally the comments I(Smokey) have made could be construed as racially insensitive. Again, those words are MINE (Smokey), not Quinn's. DP has a habit of attributing my (Smokey's) remarks to Quinn. Quinn won't let DP on his site because DP continues to spam it with 9/11 conspiracy nonsense.

Thu, 10/07/2010 - 14:15 | 633052 DavidPierre
DavidPierre's picture

Smokey Quinn:

You just cannot help yourself MORON.

Now you post under an aka on ZH.

Explain why you take down long standing and obscenely racist, "Smokey", comments off of the '30 Blocks of Squalor' thread if they were not yours?

Every one is a Liar and should Fuck Off... except you.




Thu, 10/07/2010 - 15:24 | 633335 Smokey1
Smokey1's picture

DP---Your lies are transparent. ANYONE is free to easily look at any of the past articles on Quinn's site and see the MANY nasty arguments I've had with Quinn over this country's military policy. His belief that Ron Paul could save this country and my belief that we would be speaking Russian in this country before the end of Ron Paul's first term. But of course you already know that, but can't refrain from your psychotic drivel. Why don't you give it a rest? Everybody knows you are a deluded fool and in severe need of professional psychological evaluation. Again, to expose your sick shit, all anyone has to do is take a few minutes and check out the past posts on TBP. You are a liar and a fraud. Seriously, DP. Get help.

Thu, 10/07/2010 - 08:31 | 631809 -Michelle-
-Michelle-'s picture

I'm waiting to see how many of those idiotic "Lexus in the driveway wrapped in a bow" commercials there are this year.

Thu, 10/07/2010 - 12:30 | 632557 Almost Solvent
Almost Solvent's picture

Buy a Lexus.

Get it giftwrapped for free.


Thu, 10/07/2010 - 01:31 | 631413 frankTHE COIN
frankTHE COIN's picture

A massive amount of these loans were the equivalent of Interest Only payments for years until the resets begin. Now that the resets are here ( no consumer buying, thus no profits ) the adjusted new payments are multiples higher.

Warm up the bankruptcies !

Thu, 10/07/2010 - 09:08 | 631686 kathy.chamberli...'s picture

got. COIN morning do you people ever sleep? really how do u do it. goin  pick up the horn.

Thu, 10/07/2010 - 10:21 | 632052 frankTHE COIN
frankTHE COIN's picture

On California time. It was a coincidence.

Thu, 10/07/2010 - 01:34 | 631420 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We should turn strip malls into homeless shelters.

Thu, 10/07/2010 - 01:36 | 631423 tip e. canoe
tip e. canoe's picture

with rooftop farms

Thu, 10/07/2010 - 12:36 | 632569 Almost Solvent
Almost Solvent's picture

Carl Paladino running for gov in NY wants to put welfare recipients & the homeless into underutilized prisons for personal hygiene & how to work lessons.


Of course he should have thought of empty strip malls first, then he would not have been attacked as racist, etc.  

Thu, 10/07/2010 - 04:08 | 631494 i-dog
i-dog's picture

I think FEMA already has the fences and guard towers on order.

Thu, 10/07/2010 - 01:34 | 631421 gwar5
gwar5's picture

I fear for commercial real estate. We're all in trouble if this gets worse. Which means it will.

Thu, 10/07/2010 - 01:38 | 631427 tip e. canoe
tip e. canoe's picture

not if you own a skateboard.

Thu, 10/07/2010 - 01:38 | 631424 Caviar Emptor
Caviar Emptor's picture

Will Washington go to bat for CMBS holders and banks again? And again? 

Going back to the well won't be quite as rewarding. There'll be winners and losers in the game, but that's enough to spook markets for a while. I wonder how much high yield debt is hanging in the balance. 

In the next phase of societal collapse a la Orlov, State governments seize vacant commercial property for use as no income housing. 

Thu, 10/07/2010 - 01:44 | 631428 Miles Kendig
Miles Kendig's picture

Allowing loans to be rolled over with no hope of ever being repaid will only prolong the pain and delay the inevitable

While doing so allows the party to go on for an even greater period of time.  Everyone knows that the primary responsibility of an "independent" central bank is to know when to take away the punch bowl .. er .. keep the hopium flowing.  And with the vice of vice herserlf Janet Yellen now on the job there will be free dope for as long as government and the banks want it.

Thu, 10/07/2010 - 01:40 | 631429 traderjoe
traderjoe's picture

"They will receive their fat bonuses and stock options right up until the day they are shown the door."

Here, let me correct that for you:

"They will be allowed to resign with their $100 million severance intact after a little dust up with some expense reports and a DD-list 'movie' star, and then get hired promptly by a direct competitor who will offer a multi-million signing bonus." There, that's a bit more accurate. 

Nice article. I don't we will make it the 10 years to de-leverage. System imploding in 3...2...1....

Thu, 10/07/2010 - 01:43 | 631435 AUD
AUD's picture

Much the same here in Australia, I live not far from a smallish country town, hardly boomtown & it has plenty of vacant commercial real estate.

The consumer is not deleveraging though, as you say, the value of the dollar gets crushed and you end up bailing out the banking system.

Thu, 10/07/2010 - 03:09 | 631495 i-dog
i-dog's picture

Australia can just keep digging shit up (or chopping it down) and shipping it out to anyone with Yuan, Yen or Rupees. That should keep the Aussie Ponzi going quite a bit longer than for EU and US.

Thu, 10/07/2010 - 01:44 | 631436 Caviar Emptor
Caviar Emptor's picture

Breaking: Vietnam may reverse gold import ban.

Thu, 10/07/2010 - 04:45 | 631531 StychoKiller
StychoKiller's picture

With Gold quoted at $1363+ as I type this, sounds like there's no "may" about it!

Thu, 10/07/2010 - 01:55 | 631444 cranky-old-geezer
cranky-old-geezer's picture

" ... that will play out over the next decade."

Bullshit.  It's going to collapse in 3 years tops ...along with lots of other stuff.

I get so sick of hearing "in ten years", those folks don't have a clue how bad things really are and how quickly it can all come down.

Thu, 10/07/2010 - 05:09 | 631541 Popo
Popo's picture

Yes. True.  It *should* all come down quickly.  But if there's one takeaway from what we've seen so far:  The powers that be are *much* better at extend and pretend than anyone thought possible.

I was banging the drum for 'imminent collapse' for a long time.  Now, the truth is: I have no idea "when" shit will fall apart.  

I'll say this about our mutual enemy:  They're good.




Thu, 10/07/2010 - 10:40 | 632111 kaiserhoff
kaiserhoff's picture

Well said, Popo.  As long as they can keep banks open with negative equity, and whole states ignore their own bankruptcy, this damn fraud rolls on.

We got a bit of rain on the coast recently.  It was fun to see so many for sale signs sitting in 3 inches of water.  Many of those signs are changing to "must sell."

Maybe, someday, there will be justice in the world.

Thu, 10/07/2010 - 01:54 | 631447 Xibalba
Xibalba's picture

Customer Al Thomas added, "I was driving down the interstate and saw the sign that said Bass Pro open and I said, 'I‘ve got to come in and get some stuff!'  Even stuff I don't need, I'm going to buy something." -

Thu, 10/07/2010 - 09:17 | 631925 -Michelle-
-Michelle-'s picture

I'm sorry, Xibalba.  I thought you made that quote up.  I clicked on the link and read the story and now know that you didn't.  My apologies.

God help us all.

Thu, 10/07/2010 - 01:55 | 631448 Oh regional Indian
Oh regional Indian's picture

A reading of the last weeks headliners at ZH looks eerily like a slow-motion domino collapse.

Stux, Bunds, reel estate, sovereign defaults, lies, gloom....

Interesting times indeed. Add 10/10/10 (is the UK a target again, a la 7/7/7?, all the "alerts" seem to point that way).

And in case anyone forgets, the UK is/was the US's mother ship. I know, sucks, but true.


Thu, 10/07/2010 - 01:57 | 631450 fresbee
fresbee's picture

There my Gold bugs is dreaded news for ZH:


Japan says it wont devalue its currency.


Unfortunately when I was talking about this a few days back in comments, ZH was mocking me. There is only one country and its crony who will be involved in the devaluation process but even before they are half way through the devaluation, the whole world esp Chinese and Russians will corner them or engage in military to force the US into austerity which will absolutely bankrupt the US and UK (Only US,UK and not EU which will emerge as the super power of the new century even with PIIGS who will look healthy compared to pale US and UK economies in late 2011/12. 


EURO is well on its medium term target of 1.6 and then surge from there.


Gold bugs! Am sorry, no place for you. You will hold that metal to your grave and will die poor. :)

Thu, 10/07/2010 - 02:13 | 631462 Caviar Emptor
Caviar Emptor's picture

Let me understand: before we get to nirvana we'll have killer competitive devaluation of the dollar followed by military intervention and US/UK bankruptcy....and you consider that gold-bearish??


If the world economies devolve into war, the ONLY place for safe placement of wealth will be gold since all bets and rules of business are off, chaos prevails and nobody can tell what the world will look like in the other side. When entire governments can topple, fiat money becomes like Monopoly money: based on the full faith and credit of nobody.

I'll take my money in gold under that scenario and have a fighting chance to take it with me anywhere I go knowing that everyone else is thinking the same thing and in a world craving stability and safe wealth preservation.

Thu, 10/07/2010 - 02:19 | 631465 fresbee
fresbee's picture

".and you consider that gold-bearish??"


I hold Gold paper buddy. Get the theory correct. Gold is an anti dollar trade but not end of fiat currency trade. So EURO 1.6 will far outperform Gold at 1400. I dont ever see Gold at 2000. Before that Gold will crash against euro. Dollar may not survive more than 2 years.

Thu, 10/07/2010 - 02:43 | 631481 fiftybagger
fiftybagger's picture

not bright

Thu, 10/07/2010 - 02:57 | 631485 Hephasteus
Hephasteus's picture

Like a firefly with his ass stuffed in a chunk of coal.

Thu, 10/07/2010 - 05:11 | 631542 Popo
Popo's picture




Thu, 10/07/2010 - 02:23 | 631466 Hephasteus
Hephasteus's picture

Look dipshit. Devaluing currency changes the leverage ratio's of gold. It can't go from 100:1 to 200:1. It's going to frikkin crash.

Mock. Mock. Mock.

They can devalue the currencies just by unraveling the lies a bit as you are starting to see many nations CHANGE thier gold reserve numbers for NO APPARENT reason. But if any TRUE QE hits that requires moving gold reserves or clearing international settlements. The system will crash with threatening phone calls about tungesten and send me my gold bitch.

Thu, 10/07/2010 - 03:43 | 631515 Jendrzejczyk
Jendrzejczyk's picture


“It’s not our intention to engage in a currency- devaluation race for the sake of the national interest,” Igarashi said in an interview in Tokyo today. “We could conduct smoothing operations when movements are extremely volatile, that would be permissible.”

It's not an intervention,'s a "smoothing operation."

Can't. resist. feeding. seagulls. at. boardwalk.

Thu, 10/07/2010 - 05:05 | 631537 The Navigator
The Navigator's picture

'They' say they will not devalue but issuing Trillions in Yen to make exports competitive IS devaluing their currency. The truth is Japan (and all other sovereign Central Banks) will continue to print/issue trillions more to save their exporters as other countries race to the bottom in printing Quadrillions. I won't have to wait til grave time to wave my shinny metals in the face of impoverished fiat paper holders to get the last laugh - in fact, I don't expect to wait more than 2 years for the collapse. Where the hell is Johnny Bravo?

Thu, 10/07/2010 - 06:25 | 631682 Chappaquiddick
Chappaquiddick's picture

Yep - bloody Mayans!

Thu, 10/07/2010 - 06:20 | 631672 Chappaquiddick
Chappaquiddick's picture

Buddy, I hope that you're right, but I think that you're not - the only thing going for the US economy at the moment is the size of the US Military.  The spectre of deflation may result in the US adopting some rather novel economic stimulus packages.  As war is the great inflater, I think the death throws of the Republic will initiate the greatest inflation surge of all.


Thu, 10/07/2010 - 10:45 | 632125 Diogenes
Diogenes's picture

Let your soldiers dig for gold with their bayonnets. The cost of the military is dragging you down more than they are propping you up.

Seriously, what is your military going to do? Drop an A bomb on Peking? And that is supposed to make them help you?

Thu, 10/07/2010 - 14:59 | 633237 Chappaquiddick
Chappaquiddick's picture

It'll be about what it's always about: oil and other precious natural resources.

It'll be couched in terms that average Joe understands: Good guy's vs bad guy's.

It'll be executed sanctioned by the Senate and adorned by the Flag.

God Bless America and God help us all!


Thu, 10/07/2010 - 01:58 | 631451 fresbee
fresbee's picture

That does not mean they will not intervene to throw off the mad hedge fund guys who are raiding Japan. 


So the lesson for ZH is that BoJ, RBA, ECB, RBI and no other country is involved in currency devaluation as you guys are reporting left right and center. Put some logic which is sadly absent in most ZH posts which just hand picks some news and fits into its convulted theories about how there will be "Gold coins to buy bread" theory.


Thu, 10/07/2010 - 02:07 | 631454 AUD
AUD's picture

The RBA not devaluing the Australian dollar? You got that wrong.

And anyhow, just because it's not currently going hog wild doesn't mean the AUD will even maintain its value from here. To far down the inflationist road to turn back now.

Thu, 10/07/2010 - 02:14 | 631461 fresbee
fresbee's picture

Can you please explain how the RBA devaluing the Aussie. It has been the strongest currency in the last 4 months and is nearing parity at break neck speeds. Not once has the RBA ever said anything about the Aussie. Infact it was IMF who mentioned that AUD is overvalued. You see most Asian countries (India, Aus, Japan) are not interested in wasting national resource in buying more dollars to maintain their currency. The idea is to buy more resource. Japan finally got it and have voiced it and said they will buy more resource which is madly bullish for Copper, Silver, Al and among currencies EURO.


No CBs is buying Gold except a few tons here and there!!! No mad rush. CBs know Gold value is derived from what is given to it by other CBs. They are neither selling as frankly no one wants to disturb status quo. 

Thu, 10/07/2010 - 04:50 | 631532 StychoKiller
StychoKiller's picture

That might account for Gold going to $1362+ as I type this.

Thu, 10/07/2010 - 05:27 | 631546 Bringin It
Bringin It's picture

You are right Stycho!  I had to go check?  Wow!

Thu, 10/07/2010 - 06:34 | 631695 fresbee
fresbee's picture

you nut, once you finised typing it dropped to 1355. I maintain Gold is rounding for a strong correction. It takes time but it is coming. 

Thu, 10/07/2010 - 07:51 | 631743 cat2
cat2's picture

frisbee, thanks for debating as the gold will crash/euro fiat will soar guy, but I'm going with the fiats will wildly inflate away the world debt position and gold will soar position. 

Thu, 10/07/2010 - 07:58 | 631757 El Hosel
El Hosel's picture

  "I maintain Gold is rounding for a strong correction".... You might be right BUT, before it can round and correct it must stop going straight up everyday for ( 51 trading days now, from July 29 )

 A very large "Upset" in all the world markets seems very fitting/likely now wether the cataylst be currency events, a default, or something else unexpected.

Thu, 10/07/2010 - 16:37 | 633619 Hephasteus
Thu, 10/07/2010 - 02:28 | 631473 AUD
AUD's picture

If the RBA wasn't devaluing the Australian dollar, the AUD price of gold would be fixed & the Australian note freely redeemable in gold.

If you are placing your faith in the bureaucrats at the RBA you will be fleeced. The RBA has long been a bastion of inflationism & just because in the last 12 months or so they have toned down their antics, doesn't mean their 'money' is somehow better.

Thu, 10/07/2010 - 02:27 | 631474 fresbee
fresbee's picture

Watch YEN. it is targetting 83.7 which unfold the most magnificent fall as stops will get triggered. This is going to be fun. Am longing euro against the Yen.

Thu, 10/07/2010 - 02:57 | 631488 jefftheshark
jefftheshark's picture

I am not sure that you can have a conversation regarding CRE and not mention REITs.  While it is true that the mom & pop developers are going the way of the dodo, the groups that have access to cash through the equity market are going to be picking up the cherry properties faster than you can say QE2.

Here in Nevada, every community bank is insolvent and waiting their turn to be taken over by the FDIC.  As each domino falls, their portfolios are sold off to the likes of Lennar, through entities like Rialto, or some other vulture fund for pennies on the dollar.  The new noteholders are then sitting on the buildings at zero % interest rates and either foreclosing (if it's in default) on the property outright, going after the personal guarantees for any deficiency or forcing the borrower to fund the difference between the note and the current value.  None of these scenarios being particularly attractive when you're 70% underwater.

IMHO none of these situations will lead to a CRE crash, however, because all the available product will be gobbled up by the entities that have the necessary connections, and there they will sit for 7 to 10 years in a "mark-to-fantasy" world waiting for the next cycle to make them whole.

Thu, 10/07/2010 - 08:46 | 631843 Miss Expectations
Miss Expectations's picture

Here's an article about "Builders picking up bargain home lots."

This surprised me a little, until I read:

"The time is right: The troop buildup at Camp Lejeune is in full swing."

Thu, 10/07/2010 - 09:46 | 631987 ElvisDog
ElvisDog's picture

And what are these brilliant, bottom-feeding investors going to do with all those empty CRE establishments they are picking up for pennies on the dollar? They will be nature preserves for black widow spiders. The only way that investment is smart is if the consumer comes back and those strip malls fill up again with paying tenants.

Thu, 10/07/2010 - 04:00 | 631520 fresbee
fresbee's picture

YEN hits 82.2. Incredible. 

Thu, 10/07/2010 - 04:52 | 631534 praps
praps's picture

The Fed still believes there's a recovery out there somewhere and if they can stimulate enough it will finally come.

Unfortunately there isn't going to be a recovery.  A huge wave of baby boomers are becoming sellers/savers rather than buyers/borrowers as they age.  And there is no answer to this.

The sooner everybody, especially the Fed, accepts that this is the problem, the sooner this monetization madness will end.

The economy is going down for the next 10 years as the baby boomer wave passes and we just have to live with that pain.


Thu, 10/07/2010 - 06:29 | 631692 Ricky Bobby
Ricky Bobby's picture

+1 You said it in a nutshell, also add moving capital, jobs and growth to Asia and what you get is, twilight of the empire.

Thu, 10/07/2010 - 07:54 | 631747 cat2
cat2's picture

The two biggest problems:

baby boomer demographics

systemic corruption and fraud in highest levels of government/bankers (the same group)

Thu, 10/07/2010 - 08:03 | 631765 El Hosel
El Hosel's picture

"systemic corruption and fraud in highest levels of government/bankers (the same group)"

   This is so obvious, WTF does it keep escalating in the face of all that has happened?

Thu, 10/07/2010 - 08:31 | 631808 kathy.chamberli...'s picture

cat2 i was a cat2 rider for a couple of decades. who invented the vibrator? or rather the concept of the vibrator? genius or corruption of the female? HELP

Thu, 10/07/2010 - 04:53 | 631535 litoralkey
litoralkey's picture

Hey Tylers:


If you need good CRE commentary, ask your readers for recommendations... 

If you are going to use CalculatedRiskBLog graphs repeatedly... add that blog to your blogroll and stop posting anything from Quinn when he repeatedly steals the entire post from CalculatedRiskBlog.


Thu, 10/07/2010 - 09:53 | 632012 Jim Quinn
Jim Quinn's picture

Go fuck yourself litoralkey.

Thu, 10/07/2010 - 19:21 | 633956 DavidPierre
DavidPierre's picture

Jeezuss!... Smokey Quinn, is that the best you can come up with when somebody calls you on your blatant plagarism and cut and paste bullshit. 

You are a pathetic, scared, little fat man with the spine of a jelly fish. 

Smile proudly while sending your sons off into WWIII because you were to too stupid it listen to the elders about the FACTS of life.

Like always ...You remain a MORON!

Thu, 10/07/2010 - 13:33 | 632778 RockyRacoon
RockyRacoon's picture

Who would you believe?  Information is information....

If you need good CRE commentary, ask your readers for recommendations...

That's the funniest thing I've read today...  ask your readers?  Look at the nut jobs crapping all over the site above.  You can't get a consensus in this place if you say the sun will come up in the morning. 

Thu, 10/07/2010 - 05:13 | 631543 johngaltfla
johngaltfla's picture

And with empty buildings means less income for insurance companies. With less income for insurance companies and REITs in trouble it means pension funds will be in trouble. With pension funds in trouble it means more government take overs within the real estate realm.

Wash, rinse, repeat.

Thu, 10/07/2010 - 05:44 | 631579 The Navigator
The Navigator's picture

Unfortunately I got caught up in the heat of the moment and bought a small office building (6,000SF) in 2004. It's still positive cash flow with 20% vacancy but tenants and monthly rents are dicey. Problem is that it's a 10 year amortized over 30, meaning I've got to re-fi in 2014 or have it paid off by then. In the early years (2004-2007) when business was good, I was able to over-pay by $2-$4k per month and brought the principal down considerably. But since 2007, my over-pays are only $700/month. I owe $140k on a building worth $500k but that doesn't mean in 2014 there will be ANY body or bank that will be willing to write a new loan for $80k or $90k, no matter what the equity, income, or resale value - there may simply be no lenders willing to take that risk at that time. One can hope that by 2014 the economy will be better OR that hyperinflation makes the building worth $2.2Quadrillion with a remaining mortgage balance or $90k (wow, the equity then?!?!) but numbers are hard to fudge unless you work in DC; demographics, jobs, unemployment, people leaving a high-tax state (CA) - all point to over-supply of commercial RE and downward pressure on rental income and values.

It's not my only bet. No casino bets on Wall Street stocks. But bets on (physical) PMs, 2 business ops, Treasuries - well spread. But hate to lose that gem due to interference from The Masters of The Universe - it is/was part of my retirement plan to have the building paid off and have a little rental income. I still have a plan C, plan D, plan E but viable plans get fewer and time gets shorter as time marches on and gray hairs accumulate.

Semper Paratus, The Navigator

Thu, 10/07/2010 - 09:50 | 632002 Fearless Rick
Fearless Rick's picture

"I owe $140k on a building worth $500k"

Hate t break this to you, but it depends on steady rents and who is doing the appraisal and the buying. Probably closer to $350K than you wish to think. Probably will be worth less after that. Hope you're hedged out on this puppy, otherwise that grand "retirement" myth I keep hearing about may never come to fruition.

I know a lot of stupid people with actual liquid assets of between $600K and $1MM who are still working, most of them capable of taking early retirement with a small kick to their pension. They range in age from 56-60. Some won't retire because they get an extra 1 1/2% of salary added to their pension. One, who is at the top of the stupid list has home paid off, 31 years on the job and says he needs an entry-level JOB before he can retire. Does anyone besides me see the error inherent in this line of thought. I have to get a JOB so I can RETIRE.

Makes no sense on its face. These numbskulls will probably keep working until their pension plans begin to get devalued. I don't know, but $600K+ can buy a lot of house, plus some PM and still plenty left over.

Thu, 10/07/2010 - 13:35 | 632788 RockyRacoon
RockyRacoon's picture

The "worth" of a house and the "worth" of an office building are two severely different things.   An office building can have a negative market value.

Thu, 10/07/2010 - 10:52 | 632142 Diogenes
Diogenes's picture

Don't worry about it. The way things are going, by 2014 $140,000 will be the value of a second hand car, or an ounce or 2 of gold.

There was a story on here the other day, about a German farmer who paid off his mortgage with the proceeds from selling 10 dozen eggs, during their hyperinflation.

On the other hand, if hyperinflation does not hit that soon, you will be able to refinance at very good rates. They sure won't want to foreclose another building, especially one that the payments are current on.

Thu, 10/07/2010 - 11:09 | 632206 TuesdayBen
TuesdayBen's picture

Nav, I've seen a few guys on this site point out that they are stuck with commitment to execute a 1031.  I'm not that familiar with intricacies of 1031s, but can the fact that theree are those out there needing to place their gains into a new property help you unload your property at a decent price?

Thu, 10/07/2010 - 14:31 | 633120 The Navigator
The Navigator's picture

Wish there was but the 1031 exchange volume has hit the floor as lenders for small commercial RE aren't out there. My best bet it to get it paid off with current cash flow (but doing it with 2 dozen eggs would be nice) or paid down enough so finding a loan for $50k or $80k can be done, OR liquidating other assets to pay it off. I'm a bit more worried about local, municipal and state governments looking at it for more tax revenue and thereby reducing the net cash flow - of course they need the money more than I do, for the greater good you know.

Thu, 10/07/2010 - 05:54 | 631607 narlah
narlah's picture

I wonder if it is a ugly sign for all of our human culture that we are concerned of the health of parasites that are reselling someone else slave labour - more than hospitals or war victims ...

Thu, 10/07/2010 - 06:08 | 631640 lamont cranston
lamont cranston's picture

In 2007 I called my banker at Regions and asked when we were going to meet to roll my 5 yr note (15 yr amort) where my biz is domiciled. It was always drafted, no problem. Appraised value today is still 4X my note.

He called me a month before the rollover and said, "We're not doing small industrial properties (<$250K) with past environmental problems anymore" (I'm in the environmental biz - cleaned up this site myself). Thank God I found refuge with a small private bank who gave me a better rate & amortization (20 yr).

Regions just got stung for $80MM from a developer who built a huge entertainment complex downtown (Charlotte). High profile, all over the papers. And I'm still current w/ my note. Dumbasses.

Thu, 10/07/2010 - 08:35 | 631818 snowball777
snowball777's picture

I'm betting you get "big client" service from the small bank to boot.

Thu, 10/07/2010 - 06:19 | 631665 fresbee
fresbee's picture

Germany is racing ahead...1.7% rise in industrial prod. While ZH is predicting the near end of of world and the greatest proponents of the Gold trade, Germany, China and India continues to mock ZH theories. 

Thu, 10/07/2010 - 06:59 | 631703 i-dog
i-dog's picture

They're not trying to destroy "the world" ... only the US and Western Europe. Germany is fighting them to try to save the Euro (or themselves, at least). Get with the program.

The Euro was supposed to demonstrate the wonders of a collectivist (global) currency, but it has failed. Just waiting for the death notice in a year or two. Make your trades with that in mind. I agree that it should/could outlast the USD.

China, India, Brazil, Russia are the next big game. They will not be taken down, just infected and controlled for decades to come while they provide shit to sell to their teeming millions and "developing nations" ... exactly as the US was the mass production (ie. low cost) factory for its teeming millions and the western world for 100 years before 1980.

Then, when their middle classes become fat and happy with lots of trinkets and disposable income -- and thereby pose a potential threat to the power of the oligarchs -- they will be stripped clean with illicit drugs, taxes for welfare and a planned implosion. Same old story.

Thu, 10/07/2010 - 06:27 | 631687 fresbee
fresbee's picture

Wait for 12 months and Telegraph and Ambrose Evans to write an article on this about how China EU and India-EU and Japan, Brazil contributing and changing the face of the the= world economy. Instead ZH focuses on Gold and its $50 rise and all the while ignoring that Gold is falling in euro terms, aud terms, and Inr terms. 

Thu, 10/07/2010 - 07:59 | 631758 snowball777
snowball777's picture

And you are somehow ignoring the (2nd) most f***ed banking system on the planet because why?!

Surely this coupling of the EU and Japan has led to stellar growth in Japan's economy, right?

And China doesn't have its own property bubble set to pop, right?

Exactly how many solar panels do you expect a noob petro state like Brazil to buy from Germany?

Didn't that putz from GS (rhymes with kneel) already spin this crap (the unleaven, N11)?

Thu, 10/07/2010 - 06:28 | 631690 fresbee
fresbee's picture

And once you see Ambrose write about it, you will see ZH picking it up and posting it. If there is a contrarian indicator, it is ZH.

Sat, 10/09/2010 - 04:21 | 637448 Bringin It
Bringin It's picture

Fiat robo-paper troll.  Stay on msg. or you get no cheese.

Thu, 10/07/2010 - 06:56 | 631709 Samsonov
Samsonov's picture

"There is 14.2 BILLION square feet of retail space in the U.S."  That's only because we need wide aisles for our wide asses.

Thu, 10/07/2010 - 06:59 | 631710 ebworthen
ebworthen's picture

Two Hollywood Video stores built in town less than 7 years ago gone, shuttered in the past six months.

Want a real gauge of the economy?  Look at the delivery pizza chains lowering prices and begging you to order; and the Jiffy Lube commercials, lowering prices, employees out front waving signs.

These are two working class luxuries that have to go when the SHTF, and it has for most.

Thu, 10/07/2010 - 08:40 | 631829 snowball777
snowball777's picture

Good point, differentiating between the discretionary and necessary spending of consumers...the belt never tightens with an even distribution. Not a good time to be NFLX or a service sector worker.

Thu, 10/07/2010 - 07:34 | 631725 kathy.chamberli...'s picture

twilight zone right here right now

Thu, 10/07/2010 - 07:35 | 631726 primefool
primefool's picture

If this kind of currency /commodity action continues for a few more weeks - the US will be "isolated". ie. We will not be able to buy stuff from the rest of the world. Too expensive.
Naturally, the flip side of that is - the world will not be able to sell us anything.
Let the best man win.

Thu, 10/07/2010 - 07:40 | 631732 primefool
primefool's picture

Maybe its time to let the chips fall where they will and see if Europe and China (the Euchis)- can make it on their own. I can imagine their confidence level is quite high since they invented everything necessary for civilization ( electricity, cars, TV, planes, computers, internet etc ).
..... oops .... wait a minute.

Thu, 10/07/2010 - 07:41 | 631733 primefool
primefool's picture

Well Ok OK - well the Euchis do have an abundance of fresh water, food and energy.
..... oops --.. wait a minute.

Thu, 10/07/2010 - 07:44 | 631738 primefool
primefool's picture

Actually the Chinese are incredibly smart - they did invent gunpowder and paper-currency ( but that was umm some time back).
And the Europeans .. well.. they did give us Beethoven .. Mahler.( but that was some time back).
nevertheless, Iam sure they will figure out a way to get along and do quite well without the nuisance of having to "carry" the US.

Thu, 10/07/2010 - 09:02 | 631881 i-dog
i-dog's picture

You really did choose an appropriate handle! Well done ... now stick your head back in the sand, the adults are talking.

Thu, 10/07/2010 - 08:00 | 631759 rivershore
rivershore's picture

The internet is killing commercial real estate.  It is no longer necessary to go to a physical location in order to meet with people or transact business.  Video will kill more than the radio star.

Thu, 10/07/2010 - 08:37 | 631823 snowball777
snowball777's picture

Rest in hell, shitty commercial real estate 'parks'.

Thu, 10/07/2010 - 09:47 | 631991 Battleaxe
Battleaxe's picture

I've never been able to stand malls. They're full of shopping addicts donning their recent purchases parading around trying to get someone to look at them while they talk on their cell phones. "Disneyfied" human interaction.

Thu, 10/07/2010 - 08:14 | 631787 Thoral69
Thoral69's picture

To get a better perspective on what is happening now with the Amereican consumer, check out this site.

Thu, 10/07/2010 - 09:42 | 631974 centerline
centerline's picture

Just adding my thoughts... from what I see (anecdotal evidence here), consumers are not deliveraging at any solid pace.  Marginal at best - picking away at higher interest debts mainly.  I have struggled to understand why.  Ultimately it comes down to a realization that ZH'rs are a small group.  The masses know something is wrong on an instinctive level.  But, the consumer/American Dream brainwashing - generations in the making - is so solid that critical thinking has been pushed from conscious thought.  Only instinct remains - and it stands in defiance of the "norm" and MSM spin.


Likewise, in face of deleveraging are rising gas prices, food prices, energy prices, taxes, healthcare, etc. combined with reduced wages and high-unemployment.  For some, deleveraging is simply impossible.  For others, meaningful deleveraging would mean giving up cable tv, or the cell phones, or something else that is not mission critical to survival.  This isn't going to happen en masse until the financial pressure mounts further.  Unfortunately, for most, by that time it will be too late.


Seems to me we actually have a game of chicken going on here.  Who will bite the dust first - the banking system or the consumer.  Or are they both going to meet head-on in spectacular collision in which neither walks away.  The clock is ticking. The FED shenanigans can extend the distance between the oncoming cars - even slow them down a little here and there - but hasn't the ability to avoid a collision.  The consumer is simply too saturated in debt and th primary consumer asset class (housing) is not coming back to bubble levels.

Thu, 10/07/2010 - 09:51 | 632006 lamont cranston
lamont cranston's picture

If I see another dude walking the street with a "Furniture Store Closeout - Save Up To 70%" sign and dressed like a 70s pimp with wig I'm gonna scream. Two already this week in different towns, different stores.

That's the future of retail & CRE in general.

Thu, 10/07/2010 - 10:04 | 632040 Battleaxe
Battleaxe's picture

The streets are full of costumed sign holders trying to wave customers into their employer's businesses. Tax preparers, car washes, pizza places, ..... You know times are bad when people will do this for a job. Same thing happened in the 30s with the walking sandwich boards.

Thu, 10/07/2010 - 10:43 | 632041 Battleaxe
Battleaxe's picture

Dbl post

Thu, 10/07/2010 - 10:38 | 632104 trav7777
trav7777's picture

yet there is SPG at 96 and SLG at 65...go figure

Thu, 10/07/2010 - 11:18 | 632240 TuesdayBen
TuesdayBen's picture

WaPo biz columnist Steve Pearlstein recently wrote following piece, summarizing extend/pretend/delay/pray situation in CRE finance, and calling for the Day of Reckoning to be no further delayed....:

Thu, 10/07/2010 - 11:21 | 632248 Grand Supercycle
Grand Supercycle's picture

Updated FTSE weekly chart:

Do NOT follow this link or you will be banned from the site!