You're now on the archive server. Commenting has been disabled.
Wilbur Ross: "The Beginning Of A Huge Crash In Commercial Real Estate"
In what would could pass for Cohen & Steers' worst nightmare, Wilbur Ross today said that he anticipates essentially an Armageddon for US commercial real estate. What we fail to see is how this is news... What we fail to see even more is how the hell REITs are still trading where they are? It must be all those non-cash dividends, the staggering debt loads and the exploding cap rates which make them such an attractive proposition. As Ross points out: "All of the components of real estate value are going in
the wrong direction simultaneously. Occupancy rates are
going down. Rent rates are going down and the capitalization
rate -- the return that investors are demanding to buy a
property -- are going up." Which begs the question: just because everyone knows the potential fall out associated with CRE, yet no proactive steps are taken to moderate these adverse developments, save a hope that the Fed will inflate debt sufficiently before 2012 when the refi crunch hits in earnest, does this make REITs a strong buy as BAC/ML has been claiming for months on end?
Some more perspective from Bloomberg:
Billionaire investor Wilbur L. Ross
Jr., said today the U.S. is in the beginning of a “huge crash
in commercial real estate.”
U.S. commercial property sales are forecast to fall to the
lowest in almost two decades as the industry endures its worst
slump since the savings and loan crisis of the early 1990s,
according to property research firm Real Capital Analytics Inc.
The Moody’s/REAL Commercial Property Price Indices already have
fallen almost 41 percent since October 2007, Moody’s Investors
Service said Oct. 19.
Ross, the 71-year-old chairman and chief executive officer
of WL Ross & Co. LLC, said in an interview on Bloomberg Radio
that he would use “extreme caution” before putting money into
commercial real estate, especially office space, because
properties are losing tenants.
“I think it’s going to take quite a while to work itself
out,” Ross said.As of Oct. 15, Ross said he had spent less than $100
million of at least $1.5 billion available to him under the
Public-Private Investment Program, an investment pool of private
and government money for purchasing distressed assets from
financial institutions.
Ross is not alone in his CRE gloom, and was joined most recently by billionaire George Soros:
Billionaire George Soros, speaking today at a lecture
organized by the Central European University in Budapest, said a
“bloodletting” may be coming for leveraged buyouts and
commercial real estate.
“The American consumer will no longer be able to serve as
the motor for the world economy,” said Soros, 79.
Yet every story has two sides. And while we have beat the dead horse which is the avalanche of endless Merrill upgrades, which have led to the lone bright light in the firm's investment banking/underwriting revenue, a different angle is provided by REIT manager Cohen and Steers which must be looking at today's action with just a bit of trepidation. We point you to their most recent investment commentary. We also suggest you swallow the blue pill before reading this.
REITs have rebounded significantly from their lows in March (although
they are still 50% below their February 2007 peak) largely because of
the aggressive steps they have taken to repair their balance sheets and
trim expenses. In this, they are substantially ahead of domestic
private operators, which have limited access to capital and will
require additional equity capital to recapitalize. In fact, we expect a
number of cash-strapped private companies to address their capital
needs by launching REIT IPOs—a development we welcome, as it will
expand our investable universe.We believe that the next phase
of the recovery cycle—acquisitions—will likely begin next year and
extend through 2014. REITs will be in a position to take advantage of
buying opportunities, most likely from distressed private sellers.
Acquisitions will be followed by a recovery in economic fundamentals
characterized by an improvement in occupancies, rising rents and
resumption in REIT top-line growth. Our best estimate is that this will
begin to occur in the second half of 2010. [Ross and Soros on one side; Cohen and Steers on the other... not sure who we are going with on this one just yet]In the meantime, as
real estate valuations seek out firm ground, we will maintain our focus
on well-capitalized REITs with healthy balance sheets, and pursue
select opportunities among companies we believe are undervalued, but
have sound business models and strong management teams.
»
- 11498 reads
- Printer-friendly version
- Send to friend
Tyler,
You should consider getting this some attention - it's so true:
Thomas Jefferson quotes:
If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.
Thomas Jefferson quotes:
The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale.
And don't forget to listen to the ZH theme song while your reading your omnipotent historical quotes:
http://www.youtube.com/watch?v=gGZwmelwnBU
Wiiiiiiilllber!
That is not a Jefferson quote. Jefferson's lifetime far predates use of the term "deflation" even, so it is quite obviously not a Jefferson quote.
http://www.snopes.com/quotes/jefferson/banks.asp
Yeah, but he WOULD have said it... : p
Sorry - no idea how the garbage got in my post.
So edit it - you have login capabilities.
I.E 4???
Disable rich text and go to work
Thank you
Just wait until after Xmas. No, strike that, retailers already know that disaster is shaping up this holiday season. Perhaps the smart ones will shut down BEFORE Xmas.
If you take a spin through any of the rather affluent SoCal beachside communities, you may notice the rather large number of residential units that are for rent.
All those 20/30-somethings are now living back with their parents. They are evidently not using their new found disposable income (aka allowance) to buy needless toys. The number of retail vacancies is quite high; after Xmas, they can be converted into refugee camps.
good. let the die. let private equity die too. no bailouts.
If all the retailers go out of business, where will I get my Cheetos?
Remember guys, the recovery is being held back by....the the recovery efforts and the bailouts! Yes, that's right. Without the bailouts, we already would have seen the market clearing on its own. EVERYWHERE would be like Detroit where the average home....ooops, the MEDIAN home price was $7,100 this year (according to Page A1 WSJ article last month), down 90% from $73,000 last year.
Think about it: If you have your IRA/401K in cash (or better yet in Aussie dollar CDs), and housing drops 91%, you can walk away from your mortgage and move across the street to your next door neighbor's house, paying cash from your retirement account. What's even better is that your neighbor CAN DO THE same exact thing!!!
And if we break a few of the windows, and tear up the lawn with your car, we can put the landscapers and the glaziers back to work, too!
LOL
Btw, as much as I like Rosie, Stoneleigh over at TAE has an amazing, top level analysis of what got us here, where we're at right now, and where we're heading. Essential reading:
theautomaticearth.blogspot.com
A highly rational summation. Thanks for the info.
B9K9- That is an awesome Q&A article!
Apocalypse Now
The higher they fly the further they have to fall. The fact is that CRE will go splat since the time to apply prophylaxis is past.
You mean Obama et al were wrong?????????
MOMMY !!!!
bonddude - You provide a ray of humor, as always. Thanks BTW, Obama or Bush, it does not matter. On this one the process is the same.
Speaking of crashes, today is FDIC Friday.
Over/under = 4 1/2
Happy FDIC Friday all.
I'll take the under. It wouldn't do to add to a jittery stock market by closing a bunch of banks. They closed 7 last Friday and if they go 5 or more today people will wonder if that's the new normal.
I call 2 this week and 6 next week.
Green Sharts: I hear what you're saying but if you saw the hearing yesterday with Timmy Dimwiddle and Ms. Blair they are at logger heads. In a very passive aggressive move closing more than 5 would be the ultimate FU to Timmy.
The only problem is that since the FDIC is insolvent, she is relying on Timmay's LOC
he has not funded it yet....she got several
billion from fdic dues which will allow her
to close a few more banks....
Over.. Total line at 425m
i'm in for 4.
800 million
Bold DH. BTW, you and Lizzy have your response from last evening.
ATB
i think i know what u mean, forgot which article the post was in.....lizzy is a very nice person and very bright.
true fact
http://www.zerohedge.com/article/quantifying-too-big-fail-governmental-s...
got it.
we simply must continue the battle for the kids......
I will take the over. My gues is 11! Cant wait for robo thread on todays action!
Looks like a big fat ZERO bank closings this week. No new ones posted at the FDIC's website. I guess they shut the last of the bad ones with that flurry last Friday.
Whoah, looks like I jumped the gun. 9 closings! The overs have it!
In fact, we expect a number of cash-strapped private companies to address their capital needs by launching REIT IPOs—a development we welcome, as it will expand our investable universe.
That rich!! IPOs..... I don't think so. when (P3) hits and it maybe beginning now it's goin' be IPO who?
We have been heading there for several decades--just no way to stop.
AIG just doesnt want to be 6 feet under and keeps coming back from the dead.--------------
Happy Halloween everyone
http://www.bloomberg.com/apps/news?pid=20601103&sid=aKBRHcsabS78
Carl Icahn just agreed. The Ross interview is up on my site. You should throw it up here Tyler...
Here's the link: http://media.bloomberg.com/bb/avfile/News/Surveillance/vkhlOv_YjeeM.mp3
You blog has been rocking good especially these past few weeks. Thanks for all your great work. Nice to see you out here in the field with us commoners. Apparently you got past the captchas which is a bonus. LOL.
Those math questions are damn hard. I have an easier time deciphering the market than commenting on ZH....
And thanks for the compliments by the way.
I love your site and thank you for the information you post.
"Washington is the new Wall Street." Now that is depressing. True, but depressing.
Hey can someone tell me a good U.S. REIT short ETF that isn't leveraged?
Why not leveraged short ETF?
SRS I think is a great play!
Because timing is a guess (even still) and the levered ones have attrition.
Take $100, earn 5% doubled today = $110. Now have a down (bull in this case) day of 5% (doubled) and you have lost $11 and are at $99.
The underlying remains the same as when you entered the play. But you lost 20% of the +/-5% volatility.
Just short IYR
i really don't know what everyone is so worried about....this problem is perfectly amenable to bailouts and quantitative easing....in fact it may present bernanke an opportunity at naked printing....
Someone is goosing the REITs as we speak. Started about 3:30. Amazing.
What the hell? +2-3% (depending on the one in question) in 10 min.????
Yeah, it's pretty damn obvious looking at this one:
http://ichart.finance.yahoo.com/b?s=VNQ
I was watching IYR at the time and it shot up at 3:30. Almost straight up for a few minutes. Backed off a little after 3:45. After looking further, it appears it hit a resistance level at 39.56 level. Hell of a bounce. Amazing the market is down 250 points and SRS is only up 3.82 percent. Over 8 percent at one point in the day.
Speaking of REITs what the hell is going on with them as I write this (~3:40pm EST)? Who is buying this crap and why???
CRE news...no help from FED? This seems like big news
http://www.economicpolicyjournal.com/2009/10/fed-to-banks-with-major-com...
CRE news...no help from FED? This seems like big news
http://www.economicpolicyjournal.com/2009/10/fed-to-banks-with-major-com...
Sounds like more FED induced bullshit to me, or accounting tricks to hide the debt.
Anyone know what time this was released today?
Jim Goldman's such a fucking idiot. "take that to the bank"
I am currently scoping out interesting opportunities on 2X-3X bull leveraged ETF's - Put options on the ones that are near their annual highs.
With the decay inherent, this could be a huge idea as long as the government doesn't inflate through liquidity. The question is now that the POMO is over, what mechanism can they use to pump/stabilize and is it as self evident as the POMO offerings (MBS, etc).
All asset classes are over valued, deflation is taking hold and all asset classes will most likely drop before gold and silver increases (physical availability is a huge problem) and hyperinflation from currency crisis takes hold.
Real estate (residential and commercial) prices are ultimately driven by wages (70% consumer driven economy), so this should not be a surprise.
Sorry, I had to stop at investable universe. It will take more than a blue pill or two for me to read the rest. Just imagine, a railhead in the universe, a delivery point for hope and printing presses as far as the hubble can see. I lost money the past 5 months because I did not understand hope and cheap stocks. I sat around on the sidelines reading how dumb I am. (to some point I am a litle thick headed, maybe even slow). But of all the things I have learned, the collapse of the CRE is going to happen and it is going to hurt very badly. But not near as badly as the lack of an energy policy in 2012.
What is the urgent need for the Fed or whoever to support these stocks????? It's as if the fate of the whole market and the economy in general hinges on the REITs not going down. Today the whole market is down huge and at 3:30pm on the nose someone comes in and gobbles up not the whole market as in the past several months but just the whole REIT sector. WTF??? Why are these stocks so crucial and to whom??? Somebody more knowledgeable than myself please enlighten...?
Ditto. Wilbur Ross proclaims commercial real estate armaggeddon and stocks (REITS) absolutely reverse. Someone uses Wilbur Ross to set up the reversal. Trying to get in lower? Criminality everywhere!
The Federal Reserve on Friday adopted a policy statement supporting prudent commercial real estate (CRE) loan workouts. Great timing, don't you think?
Thanks for this, now I am truly depressed. ONLY the FED could come up with this line:
"In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined."
Please continue to mark to myth because we said it is alright e.g. continue on with the pretend and extend program.
well said mberry.
What time did this come out? 3:30?
Here is why I still away from SRS after losing money.
1) Low volume and ability of major movers to move the market.
2) The major players want to run REIT IPOs to cover their loans and gain IPO fee income.
3) The FED will do as it is worried about CRE so may try other new programs to support CRE (I mean the banks).
4) CRE is a play against a dropping dollar.
5) FED and SEC will probably enact the short cover game plan again.
So, the REITs will be moved up. I think that you are better off playing a rising dollar and international markets. Cheers.
Put enough thrust on a brick, and it will fly. But when the thrust is gone, it will drop like a...
"Cash strapped private companies" doing an IPO.....hmmm, where have we have seen that before...thinking, thinking....AHA!
Remember Everquest Financial, the Bear Stearns led IPO of Cioffi/Tannin toxic waste?
http://www.sec.gov/Archives/edgar/data/1395286/000095012307007116/y30182...
Pay special attention to the prospectus "box," where all the crucial marketing points of the deal are outlined, such as "Strong Alignment of Interest" (as in Tannin/Cioffi's desire to dump crap on gullible IPO buyers' willingness to buy it!).
This is the caliber of IPO Cohen/Steers is referring to. Buyer be aware, be VERY aware.
-PJ Albermarle
Confidential housing report in front of me, quote from JPMorgan Chase:
"...so we believe you will see several hundred additional smaller regional based banks not make it."
Several hundred.
yikes...thanks for info Ned.
looking forward to the reheating of the lewis et. al. matter!
Ned, the process continues. Heck of a self inflicted would, wouldn't you agree? This process of growth through exclusion and subversion of the rule of law must end or we will find ourselves in a wholly different place to which we find ourselves transitioning. Thanks for the 411.
Have a great weekend.
I've followed Ross in the past as he tied together the assets of various steel mills forming International Steel. This guy is a very savvy bankruptcy player. His lack of involvement speaks volumes. The impact of a major commercial real estate bust on the economy will put us back a decade. If we recover.
It looks like CRE is what may have to be sacrificed to save RSE. Residents vote, companies do not!
time123
Pension Plans and insurance companies are full of CMBS.
-> 115561
From the same Snopes:
http://www.snopes.com/rumors/putcall.asp
Really?
Wow, do you have any more info on this?
Many excellent posts. Kudos. God help me I can't wait to see what happens Monday!
Great blog! I appreciate the hard work every body is putting in to maintain the website and all the visitors to it, the webmasters are doing great job, thanks again to all the good people. Thanks Umbrella Cover