[timmac]

What ever happen to the supposed commercial real estate that was to colapse and cause a 2nd wave of bank failures, is it still going to happen or has this been fixed, we still have a lot of vacant commercial here in Vegas but seems to be not a problem like the resident real estate bubble, did all the bailouts keep this at bay, anyone know whats going on here.

[Tyler_JC]

It's happening, albeit slowly.



Over the next couple years as these loans come due many of them will blow up and take down some banks.

Implications of John Hancock Tower Auction Grim for Commercial Real Estate

Suppose you bought an office building five years ago with 20% down, for an 80% loan-to-value ratio. You have not missed a payment, the building’s value has been stable, your amortization has paid down the loan balance by four percent of the building’s original value. A new loan will have a 76% loan-to-value ratio.

Here’s the problem: nobody will make a commercial mortgage loan with a 76% loan-to-value ratio today. You haven’t missed a mortgage payment, your building is fully leased, you’ve been working down your principal, but the lenders are all scared. Bank regulators are scared. Secondary markets are scared. So you have to pony up additional cash to bring the loan-to-value ratio down to at least 70%, and maybe even 65 or 60%.

What if you don’t have the cash sitting around to do that? You have a maturity default. Your problem is that credit standards tightened faster than you were paying off your loan.

[Leanan]

The numbers are ugly and getting uglier, but I don't think you can expect a fast crash like we got with residential mortgages. Banks are willing to cut deals for commercial borrowers that ordinary people would never get.

[timmac]

The numbers are ugly and getting uglier, but I don't think you can expect a fast crash like we got with residential mortgages. Banks are willing to cut deals for commercial borrowers that ordinary people would never get.

Maybe they are forced to cut deals, since we are all tap out for any more large bailouts and such, I think somthing is happening quietly in back offices of these large banks because even the main stream media does not seem to talk much about the commercial real estate but still talking about the resident real estate that tanked over a year ago, here in Vegas on the outskirts of town where the newest developments were built the commercial buildings are 90% vacant and in the inner city it almost 25-35% vacant but it seems as if things are still ok because there is even commercial construction going on as we speak, and no its not old money deals made before the collapse some are even breaking ground today, who's loaning the money ??.

[pedalling_faster]

it's happening, although some of the buys CRE companies made were so STUPID, losing those buildings hardly seems like a collapse (e.g. Morgan Stanley's purchase of a huge amount of office space in San Francisco in 2007 ).

my brother worked for Morgan Stanley CRE for about 15 years. worked his way to be a mid-level Vice President. CRE was his life.

until they let him go - this last month.

[Armageddon]

I am seeing more and more vacancies in strip malls everyday. These small businesses just aren't going to make it much longer. I have a feeling many are barely hanging on.

[Tyler_JC]

CRE loans were typically made with much larger down payments than home mortgages.

No one was getting a no money down loan for an office park.

You need 20%+ to get a CRE loan. That's why we haven't seen the kinds of defaults and writedowns yet. There is still enough of an equity cushion that when a bank repossess a bankrupt office park, it can resell it for close to the remaining terms of the mortgage.

The same cannot be said for the "liar loans" that made the subprime mortgage crisis so bad.



There's also the problem of concentration. The Big Banks don't own as large a share of the commercial real estate market as the local/regional banks.

[pedalling_faster]

I am seeing more and more vacancies in strip malls everyday. These small businesses just aren't going to make it much longer. I have a feeling many are barely hanging on.

i saw an article about 80% of small businesses being in a situation where 2010 is a make-or-break year.

i.e., either they have to improve sales, or they will close because they can't bankroll a small business that is losing money any more.

i wish the guy had elaborated & i had kept the URL.

anyway, yes, many & possibly most, are barely hanging on.

One of the implications of Peak Oil is that energy costs rice and make many activities that were previously profitable, un-profitable, so they cease - and the economic activity is not immediately replaced.

and crime rises accordingly.

[Tyler_JC]

One of the implications of Peak Oil is that energy costs rice and make many activities that were previously profitable, un-profitable, so they cease - and the economic activity is not immediately replaced.

and crime rises accordingly.

And yet crime is actually going down

The year 2009 was a grim one for many Americans, but there was one pleasant surprise amid all the drear: Citizens, though ground down and nerve-racked by the recession, still somehow resisted the urge to rob and kill one another, and they resisted in impressive numbers. Across the country, FBI data show that crime last year fell to lows unseen since the 1960s - part of a long trend that has seen crime fall steeply in the United States since the mid-1990s.

At the same time, however, another change has taken place: a steady rise in the percentage of Americans who believe crime is getting worse. The vast majority of Americans - nearly three-quarters of the population - thought crime got worse in the United States in 2009, according to Gallup’s annual crime attitudes poll. That, too, is part of a running trend. As crime rates have dropped for the past decade, the public belief in worsening crime has steadily grown. The more lawful the country gets, the more lawless we imagine it to be.

We think crime is getting worse. We're wrong. I'm okay with that.

[Armageddon]

One of the implications of Peak Oil is that energy costs rice and make many activities that were previously profitable, un-profitable, so they cease - and the economic activity is not immediately replaced.

and crime rises accordingly.

And yet crime is actually going down

The year 2009 was a grim one for many Americans, but there was one pleasant surprise amid all the drear: Citizens, though ground down and nerve-racked by the recession, still somehow resisted the urge to rob and kill one another, and they resisted in impressive numbers. Across the country, FBI data show that crime last year fell to lows unseen since the 1960s - part of a long trend that has seen crime fall steeply in the United States since the mid-1990s.

At the same time, however, another change has taken place: a steady rise in the percentage of Americans who believe crime is getting worse. The vast majority of Americans - nearly three-quarters of the population - thought crime got worse in the United States in 2009, according to Gallup’s annual crime attitudes poll. That, too, is part of a running trend. As crime rates have dropped for the past decade, the public belief in worsening crime has steadily grown. The more lawful the country gets, the more lawless we imagine it to be.

We think crime is getting worse. We're wrong. I'm okay with that.

Do they use the same formula with crime as they do with inflation and unemployment ?

[Ludi]

It seems to be finally happening here in TX, near San Antonio, where there's a 100 acre or so tract just outside the city which was scraped for commercial development and has been returned to grazing cattle. The cattle are being given hay because all the topsoil was scraped off the tract. There are several of these large scraped tracts which I expect will not be built on.

[Ludi]

One of the implications of Peak Oil is that energy costs rice and make many activities that were previously profitable, un-profitable, so they cease - and the economic activity is not immediately replaced.

and crime rises accordingly.

Because most of us only avoid committing crimes because we have jobs? And once we lose our jobs we immediately rush out to do some crimes?

[IslandCrow]

The cattle are being given hay because all the topsoil was scraped off the tract.

How long will this sort of operation take to rebuild the topsoil, assuming that all the cow patties are allowed to stay there to mix with uneaten hay?

[seahorse2]

Almost $2 trillion in commercial loans have to be rolled over in the next 32 months. The problem? The property securing the loans is worth less than the loan, so, typically, the debtor has to put more money or collateral down to secure the loan. That's a real problem for struggling businesses. In fact, it means that a lot of these loans can't be rolled over under the old methods. These loans are so big that banks are bending over backwards not to foreclose, just as they waited to foreclose on many residential developments. If the banks have to foreclose and take the bad assets back, it could easily put many more of these banks into closure. Thus, the FDIC and other over-seeing agencies are allowing the banks a lot of room as to how they value these loans and properties.

[rangerone314]

I am seeing more and more vacancies in strip malls everyday. These small businesses just aren't going to make it much longer. I have a feeling many are barely hanging on.

i saw an article about 80% of small businesses being in a situation where 2010 is a make-or-break year.

i.e., either they have to improve sales, or they will close because they can't bankroll a small business that is losing money any more.

i wish the guy had elaborated & i had kept the URL.

anyway, yes, many & possibly most, are barely hanging on.

One of the implications of Peak Oil is that energy costs rice and make many activities that were previously profitable, un-profitable, so they cease - and the economic activity is not immediately replaced.

and crime rises accordingly.

Are services provided by security guards considered economic activity?

[shortonsense]

Almost $2 trillion in commercial loans have to be rolled over in the next 32 months. The problem? The property securing the loans is worth less than the loan, so, typically, the debtor has to put more money or collateral down to secure the loan. That's a real problem for struggling businesses. In fact, it means that a lot of these loans can't be rolled over under the old methods. These loans are so big that banks are bending over backwards not to foreclose, just as they waited to foreclose on many residential developments. If the banks have to foreclose and take the bad assets back, it could easily put many more of these banks into closure. Thus, the FDIC and other over-seeing agencies are allowing the banks a lot of room as to how they value these loans and properties.

Much like the undue concentration of the subprime mess in certain geographical areas like California, Florida, Arizona, Las Vegas, the graphs used in this thread do not show WHERE those trillions of dollars of loans are. It seems to me that a shopping mall in St Paul and its attendant refinancing isn't the same problem as, say, the same type of mall in Riverside, California.

Of course, as Doomers we like to pretend that its EVERYTHING that goes into the crapper, but as peak oil and the subprime credit crisis showed, more is required than just another peak oil or just another recession, even if they occur within the same timeframe as each other.

[pedalling_faster]

Do they use the same formula with crime as they do with inflation and unemployment ?

yeah, maybe we need a website like ShadowStats.com, except with honest crime stats.

i am saying unequivocally, property crime in Northern California has risen (very conservatively) 2-fold the last 10 years. i see more locally perhaps because i'm in an urban area.

[Ludi]

The cattle are being given hay because all the topsoil was scraped off the tract.

How long will this sort of operation take to rebuild the topsoil, assuming that all the cow patties are allowed to stay there to mix with uneaten hay?

Oh probably 100 - 1000 years.

Nobody cares about the topsoil here, they run cattle for the tax break.

[seahorse2]

This regarding a client today. My client is a retail business. My client rents commercial space in a very prominent commercial retail outlet. A little more than a year ago, they were over $100k late in rent payments and the landlord was going to evict them. Well, since that time, landlord went bankrupt. My client now owes $300k in back rent. After the bank foreclosed and took over the retail outlet (a $30 million dollar loan), they forgave the $300k back rent owed by my client and reduced their rent payments. Why? I'm convinced they are trying to keep tenants in their and paying so that they can find a buyer. However, this shows how bad the commercial property market is when tenants are forgiven $300k in back rent and rent reduced just to keep the space filled.

[shortonsense]

I'm convinced they are trying to keep tenants in their and paying so that they can find a buyer. However, this shows how bad the commercial property market is when tenants are forgiven $300k in back rent and rent reduced just to keep the space filled.

Its called a "business decision".....and seems perfectly reasonable to me. Pretty standard deal post-bubble seems like, I'm betting its happened before, and it will happen again.

Certain places seem to be doing okay, even in areas which otherwise are considered disasters. For example, over at "that other place", they used this article as an example of how horrible things are.

http://www.nytimes.com/2010/03/17/reale ... atrick.net

And yet if the person who characterized it as "market collapse savages commercial real estate" had actually read the article, he would have discovered this:

"Yet despite the avalanche of negative indicators, some in the public and private sector are keen to point out bright spots for commercial real estate in the Phoenix area. Desirable pockets in affluent cities like Scottsdale have little vacant space available at any price, while areas close to the downtown core and along established urban corridors are weathering the storm fairly well. CityScape, a $900 million commercial development in the heart of downtown Phoenix that includes shops, restaurants and a 27-story office tower, is at least 75 percent leased months ahead of its scheduled opening this summer."

That was on Page 2....I suppose in the rush to characterize for the particular audience its too much to ask that someone actually read the entire article.