I don't know if it has been officially declared here or not, so I will say it explicitly. Since Wall Street DOES NOT charge for their research, it is essentially a loss leader for sales. We all know this, yet we pretend that it does not happen. Well, it does. It's pervasive. It's explicit. It's now! The goal of Wall Street research is not to enrich the retail or institutional brokerage client, but to pave the way for the underwriting, sales and trading departments. Go ahead. Prove me wrong. I dare 'ya.
I know you have heard a lot of negative stuff about commercial real estate, but most of it was after the fact, and the new stuff just doesn't seem to convey the gist of how far underwater many players actually are - or will be...
CRE is possibly the single biggest experiment in "extend and pretend" currently evolving (aside from the US economy itself, which like a drug addict, is fed its daily methadone of fiat money by its enablers Bernanke and Geithner) in America. This is confirmed by the latest Korpacz Real Estate Q3 Investor Survey: far from pig lipsticking in tried and true CNBC fashion, the report tells it how it is. The biggest victim of the ultimate CRE unwind will be all those REITs which for whatever reason are trading at almost bubble levels (SPG at $74 makes about as much sense as AMZN at $130). Dear REITs: 2012 is approaching rapidly and you still have half a trillion in equity you need to raise. Simon Property, as much as it wishes to emulate Goldman's success in the real estate arena, can not bankrupt then acquire all REIT firesale prices. Of course, when the tide of sentiment on REITs turns, it will be short and sweet: straight to zero, do not pass go, do not collect TARP, due to the value burned by these companies by not being in bankruptcy already.
Mack-Cali Chairman: "Commercial Real Estate Is Somewhere Between An Orderly Massacre And A Disaster"Submitted by Tyler Durden on 11/11/2009 10:16 -0500
The CRE crisis will hit a pinnacle when $500-700 billion of re-equitization becomes needed in a few years. Where that equity will come from is unknown as the US will need a lot of foreign investors to achieve this equity bubble reflation, and they are not there due to a foreigner-unfriendly investment regime.
The recent bear rally has driven most of the solvent, semi-solvent and absolutely insolvent CRE stocks up, quite a few approaching 100%, while their macro outlook has deteriorated significantly, along with their fundamentals. Quite a few have actually acted in cahoots with the banks that held their increasingly worthless debt, having issued secondary offerings basically converting the bank holdings of debt that didn't have an icicles chance in the hottest portion of Hell of getting repaid, into worthless toilet paper, heretofore marketed as stock certificates. They have also begun offering this used toilet paper as dividends. If this isn't the sector screaming for me to come back and short it, I don't know what is.
In what could have been the biggest piece of news today, yet making little headway into the media, the Fed announced that it is adopting a policy statement supporting "prudent commercial real estate loan workouts." And even though in traditional Fed fashion, the statement says a lot but is even more vague, some of the implications from a more nuanced read have very serious adverse implications for 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?
Here I show a direct comparison of my "on the street, grass roots" and "spreadsheet" observations to that of what is portrayed in the media. Let me know if you see any discrepancies...
How much money was lost in RE this morning in my neighborhood? At least $50mm. A very sad and troubling real estate deal has proved to be a wake up call.
If You Believe All The Negative Hype About Commercial Real Estate, I've Got A Few Thousand Vacant Office Buildings To Sell YouSubmitted by Benjamin N. Dover III on 09/03/2009 23:28 -0500
That gasping sound you hear coming from the commercial real estate market just means it's alive and kicking.
SL Green's Mysterious Cap Rate Calculations, And Budding Israeli VoIP Operators-cum-Midtown Real Estate InvestorsSubmitted by Tyler Durden on 08/10/2009 20:10 -0500
Today, SL Green announced a preliminary sale transaction (subject to assumable financing, an out wider than VaR exclusion loopholes) which is supposed to herald the coming of the new mid-town CRE renaissance. An ebullient SL Green CEO Marc Holliday had this to say: "This is a first, but significant step towards the sale of interests in 485 Lexington Avenue. If ultimately approved, the transaction would demonstrate that the Midtown Manhattan office market continues to stand as one of the world's top locations and that investor interest is once again on the rise." Zero Hedge is waiting with baited breath for the Holliday mirage to dissipate, while in the meantime Class A office space in 767 Fifth Avenue can be sublet for $60/sq foot.
Tim Geithner understands bubble peak demand and credit bubble pop supply.
It seems Hypo is back asking for more money according to the chairman of the oversight board, Michael Endres, in his interview with Welt am Sonntag. Ed Harrison at Credit Writedowns wrote a smashing post on this venerial disease known as Hypo Real Estate (HRE). It extends on latest analysis done by Ambrose Evans-Pritchard, which is highlighting tell-tale signs of serious problems in the Spanish real estate market.
Surprisingly this isn't the title of an alarmist book by an obscure author urging you to buy krugerrands and remote arable property. Instead it's a sober, substantive quantitative analysis series by Deutsche Bank's very smart Richard Parkus.
Many readers have queried how it is that investors could be so stupid to invest capital, either secured, mezzanine or heaven forbid, equity, in commercial real estate properties over the past several months. Zero Hedge would like to present some of the key pages from an investment solicitation book prepared by a major investment bank, which delineates just how it was that some of these very firms that now report massive profits, effectively took a complete piece of excrement and repackaged it as something that investors may actually generate returns on.