Wilbur Ross: "The Beginning Of A Huge Crash In Commercial Real Estate"

[AllentownJake]

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?

http://www.zerohedge.com/article/wilbur-ross-beginning-huge-crash-commercial-real-estate

[ej510]

1. It is way past due, to outlaw the trading of deratives if we cannot lay 100% of the risk on the

shareholders.

[Craftsman]

2. I am mildly suprised it is not happening already

[AllentownJake]

3. CIT is about to go bankrupt

Their primary business is commercial real estate loans.

[AllentownJake]

6. Also retailers are holding off on closing

Till after December 25th.

[Craftsman]

12. I remember Montgomery Ward closing just after Christmas so you maybe right

[AllentownJake]

14. Circut City went down January 16th last year

Retailers will do what they can to stay in business through Christmas and sell inventory above going out of business prices.

[xchrom]

4. if you're not a keystone renter -- a major bank -- nordstroms --

etc -- you the renter have to put up with things triple-net on your profits as part of your lease.

who can do that in this atmosphere?

i feel genuinely bad for many smaller retail, office, whatever business people.

[AllentownJake]

5. I'm seeing more and more of those retailers

being replaced by goodwill and dollar stores in the outdoor strip malls near me (the ones that are anchored by a Wal-Mart a Super Market or K-Mart)

[xchrom]

7. i visit north carolina with some frequency --

and i have seen some odd pairings in malls that you're talking about.

i have to think that in some of those cases the investors are taking some kind of write down because there are no renters.

and maybe these investors get a goody i'm unaware of for leasing to a goodwill -- i don't know.

i do think that commercial real estate leasers have been incredibly stupid in america -- both with the square footage rates and the hooks in the leases.

and this is one of the cornerstone problems we need to deal with.

[AllentownJake]

8. Well I look at it this way

Some rent is better than no rent. Thefore if a Goodwill wants to move into your property and they are the only ones seeking the space...you will rent to Goodwill at whatever you can get.

[xchrom]

9. you would think so --

but after my retail business closed during the bush 1 recession -- and i fought and fought and fought for reduced rents -- a period of rent free, etc -- my landlords let that space stay empthy for more than five years.

and i had been there one hell of a long time -- since then it's changed hands -- renters -- no less than six times.

now -- not all investors are created equal -- so i imagine mileage varies.

[AllentownJake]

10. The really odd thing is that most Retail renters

View Goodwill and Dollar Stores as bad tenents. Not in the view that they don't pay their rent but in the view that they drive away higher end shops.

I'm seeing some shopping centers that were pretty high-end 3 years ago allowing dollar stores and goodwills.

[xchrom]

11. perceived value and all that.

'like minded' establishments do tend to flock together.

now we start to get into what 'cheap', 'inexpensive' has done for america/americans. -- that's not necessarily goodwill -- but dollar stores?

there is a great book out called Cheap -- the author's last name is Shell.
anyway she has a great quote about ikea has divorced furniture from history -- i.e. what allen wrench, self assembled cheap products have really done for us all.

[depakid]

13. Impressive how those have proliferated in the states