[Armageddon]

This will dwarf the housing crises: Herald Tribune

Moved to Economics. The Current Events forum is for Discussions on energy-related breaking news.-FL

[vision-master]

All debt needs to be wiped clean with a total financial reboot.

Ain't gonna happen..........

[cipi604]

"The system has never been tested for a deep recession,"


That reminds me of this: The network.

Program Director: Take 2, cue Howard.

Beale: I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.

We know the air is unfit to breathe and our food is unfit to eat. And we sit watching our TVs while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that's the way it's supposed to be!

We all know things are bad -- worse than bad -- they're crazy.

It's like everything everywhere is going crazy, so we don't go out any more. We sit in the house, and slowly the world we're living in is getting smaller, and all we say is, "Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials, and I won't say anything. Just leave us alone."

Well, I'm not going to leave you alone.

I want you to get mad!

[gollum]

One should sell all bonds and stocks NOW, invest in tangible assets, and make sure any debt you have is on a fixed rate. The debt will be repudiated through inflation.

[Armageddon]

This will dwarf the housing crises: Herald Tribune
Moved to Economics. The Current Events forum is for Discussions on energy-related breaking news.-FL

Sorry, my bad.

[heroineworshipper]

Haven't noticed it because it's been moving so slowly, but Newpark Mall is now almost empty.

[Spanktron9]

There was a headline yesterday on Bloomberg talking about the rise in Commercial deliquencies and foreclosures. Someone on the forums or possibly at Chrismartenson.com was talking about Comm. Mortgage as the "next shoe". I'm starting to get that sinking feeling again.

[perdition79]

Two weeks ago, the St. Petersburg Times did a front-page story on the loan default of our pre-fab town square shopping center, known as Baywalk. Storefronts are at least 50% vacant, some are behind on their rent. The anchor of the place, a 20-screen movie theater, has seen ticket sales drop by 40 to 60 percent.

Commercial property defaults will have a negative effect on successful businesses as well. Real estate holdings make up a huge chunk of capital, and as property values drop, corporate wealth evaporates. Loans become harder to get. Businesses collapse.

2009 will be an interesting year.

[Sixstrings]

One thing I wouldn't miss is all the post-modernist Big Box architecture. I tell you, you'll never see an historical society ever trying to save these awful buildings.

[pup55]

Background Info:

But less than one year before it is due to be completed, there is one major thing that the 1.1-million-square-foot tower, known as 11 Times Square, is lacking: tenants.

http://peakoil.com/forums/posting.php?mode=post&f=33

Marcus & Millichap reported that in the coming year, asking rents countywide are expected to drop an average 5.2% to $29.08 per square foot. What the landlord is likely to get will dip an average 6.4% to $23.94 per square foot.

http://www.miamitodaynews.com/news/090416/story7.shtml

Climbing vacancies and softening rents could raise commercial real estate delinquencies, now at around 1.3 percent, to between 25 and 35 percent, if money doesn't begin to flow soon. Office values are already down 35 to 45 percent, he estimated.

http://peakoil.com/forums/posting.php?mode=post&f=33

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/14/BUVO1727T3.DTL&type=business

In light of the above background articles, I have a story for you....

I work for a family-owned corporation, I suppose you would say it is moderately sized, in a heavy manufacturing situation....We were leasing one of six buildings in a little industrial park in a semi-rural/exurban type area.

About a year ago, the lease in the building we were leasing at the time (about 7500 s.f.) expired. The landlord had just put the finishing touches on a new building right across the parking lot, and one of the alternatives on the table at the time was to rent both buildings, thus avoiding the need to relocate (we needed more space). The conversation was had that some break might be given on the rent to keep our company around.

The landlord refused, despite the fact that his new building was empty, and we had to relocate. We constructed a new building, farther out in the country. The company is not debt financed, so they shelled out about $1M for the land, construction, and finishing touches on this new building, which is about 3 times the size. It's nice. I get my own office (for the moment).

The situation now is:

A. the former landlord cannot rent out the building we were in, also, he cannot rent out the building that he built last year ( I assume this probably cost him in the neighborhood of $200K to put up the metal building). We can easily estimate how much money he is losing every month with these buildings empty, and also, how much he is having to pay out in financing because unless he has deep pockets, he had to borrow money to buy/build this development.

B. Our company paid the peak price for the land and building where we now are. The thinking at the time was, we would buy this building in the direction where a lot of the real estate development was going, and eventually they would make money on the appreciation of the property. Naturally the rate of return calculation made some assumptions about the level of business/business growth that was expected over the next 10 years or so.

C. Side point: No one is happy at the moment. Orders have slowed way down.

Predictably, the former landlord has sued us. He claims that he cannot rent out the old building because we left it too dirty. The lawyers are involved. Never mind the fact that he cannot rent out the new building either, which is pristine.

The former landlord bought the whole development a couple of years ago when it was worth something. Presumably he financed the whole thing at the time, and it's now 1/3 empty, and really questionable if it will ever regain its "value" in his lifetime. He is in his 60's I think.

So it is clear that everybody involved screwed up. The landlord screwed up by not recognizing TSHTF and reducing the rent to keep us in there. He assumed that he was a commercial property genius, buying this development when things were hopping, and could easily re-rent the place once we were out.

The boss screwed up by not waiting awhile to build the new building and move, because he might have been able to get an even better price on an empty building in the area. Perhaps the company screwed up by buying the building, rather than renting someplace and preserving their capital. Unlike a publicly owned company, they are operating on a 25-year time horizon, so they may still come out okay eventually.

The only potential winners on the horizon are the lawyers.

So no one knows how this will all turn out yet, but the chances of the developer going belly up are excellent. Whoever he borrowed the money from will be SOL when it is payment time. The chances of our 100-plus year old parent company going belly up are probably low, but the pool of cash on hand is shrinking, and is not bottomless....so they are not happy either.

So this is a little story about how decisions were made in these businesses about a year ago that are now looking pretty bad, based on expectations that this year would be sort of like the previous 20, and this is just on a small scale. You can imagine what is going on at the big scale, in some of these giant manufacturing developments, and big commercial property markets.

p.s. I tried to 'splain to the boss about the hazards in making a long-term commitment to this stuff because of variety of sustainability topics at the time, but he never did connect the dots as they applied to his own decision to build the new place. Go figure.

[copious.abundance]

I'm not known to be one of the doomer types, but commercial real estate to me is obviously one sector which is obviously going to be in a slump for at least another 3 years, very possibly even 5 years. There are 3 small neighborhood shopping centers, plus 1 small, 3-story office building, which have recently been finished or are about to be finished near me, but which clearly have no chance of attracting tenants any time soon. One of these strip shopping centers is still under construction (but almost done). It's a nice little building in a nice location, but there are several empty stores in the 2 strip shopping centers 1/4 mile in either direction, and tons of empty stores elsewhere within a 2-mile radius, and someone is going to lose a ton of money.

Anyone who builds a commercial building anytime within the next 3 years outta have their head examined.

[Armageddon]

It would be nice to put these stories in "your local economy " thread.

[lowem]

Yep, +1 to those things the community saw coming and not many other people did.

Some good stuff on my side here : one-million square feet of integrated waterside promenade and shopping arcade; a state-of-the art one-million square foot convention center; two 2,000-seat theaters; a casino; and a 4,000 car garage.

Developed by Las Vegas Sands, the Singapore Marina Bay Sands is scheduled to open end 2009.
Everyone over here has high hopes.

Well. Almost everyone.

I'd suppose they'll open with a bang, but whether it thrives or fizzles after that is yet to be seen.

[MD]

Unfortunately this type of story is playing out all over the country. Essentially companies, just like people, have a very difficult time changing from "grow" to "shrink" mode, and the poor decisions that result can be catastrophic.

I advise a number of business owners and have had to give each of them an "I tried to warn you" speech. Unfortunately a few of them will likely fail to survive.

If you think growing a company is hard, shrinking one in an orderly fashion can be nearly impossible without a change in leadership. "Grow" managers just don't make good "shrink" managers. It's a lesson I've been learning in depth these past few months.

[lowem]

While we are on this topic ...

General Growth files for bankruptcy protection

General Growth Properties Inc, the second largest U.S. mall owner, filed for bankruptcy protection on Thursday in one of the biggest real estate failures in U.S. history. Ending months of speculation, the Chicago-based mall owner, which listed total assets of $29.56 billion and total debts of $27.29 billion, sought Chapter 11 bankruptcy protection from creditors along with 158 of its more than 200 U.S. malls, while it seeks to restructure some of its debt.

[pup55]

"Grow" managers just don't make good "shrink" managers.

You know it is really interesting that you say this, but you are exactly right....You have to make pessimistic assumptions, reject investment opportunities, pinch pennies, be fanatically oriented toward quality....and always make sure you are the low cost supplier, and be the price leader on the way down. You have to be good at making something out of nothing...

A lot of the dimwitted managers that got where they are did so by embellishing their resume by a "success story", such as, "grew the business by 15% in two years by my brilliant management ability". Of course, you do not want to say "allowed the business to contract only 10% in two years by carefully managing the customer base and not making any expansion plans".

An entire generation of so-called "managers" has grown up since the early 80's with no clue of what an economic downturn is like, and how to manage in a time of scarcity.

[pup55]

General Growth Properties Inc, the second largest U.S. mall owner, filed for bankruptcy protection on Thursday

Yes indeed....

Coming to a mall near you.

http://www.ggp.com/Properties/MallDirectory.aspx

We did the calculations a year or so ago, for the proverbial pizza place in the proverbial suburban strip shop....

the proverbial 1500 square foot retail place, leasing for $25 per square foot....$100 a day just to turn on the lights.... before you have sold your first pizza, paid for your cute but lazy teenage girls who are your waitresses, and your greasy 22 year old college graduates who are your pizza flippers....and before you bought your first bag of flour or flipped the switch on your 5000 watt pizza oven.

That's a lot of pizzas just to keep the place running.

That migrates directly upstream to the management companies that buy and operate the strip shops or malls or whatever....

The "anchor tenants" get a discount, of course, but the mall makes its money by renting to the people that are trying to sell coffee mugs. The answer is: lower the rent. The problem is: if you borrowed the money to buy the building, you can't lower the rent, and get people into retail.

In our part of the country there is such a thing as a "flea market", which is a big old warehouse or whatever, open mainly on the weekends, and people are trying to live out the american dream by selling stuff out of one of those. The rent is cheap, the surroundings rather seedy, but they function.....so I suppose you will see the whole thing gravitate in that direction....

[vision-master]

Within the last two years, everytime I see a once occupied commercial space become empty, it's has remained empty.

[Minvaren]

Within the last two years, everytime I see a once occupied commercial space become empty, it's has remained empty.

I'd have to say I see nearly the same thing around here - the small places will sometimes fill back up, but the larger the empty space, the less often it gets filled.

[seahorse2]

The housing bubble broke the back of the banks. I predict the commercial loan bust will kill them where they lay. The commercial loan bust is just beginning, and the housing bust has not finished.