The Commercial Real Estate Crisis begins today

[AllentownJake]

CIT Bank declared bankruptcy.

http://www.financialpost.com/story.html?id=2170260

A good portion of these loans are structured differently than mortgages.

CMBS are Commercial Mortgage Backed Securities where Real Estate holders take loans out on there property and than the loans are bundled and sold to investors.

The Real Estate industry is being attacked on two fronts

1) Dropping of rents leading to inability to pay mortgages which is similar to regular mortgages

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2) Lack of lenders to provide financing/refinancing

"Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS -- including hedge funds, pension funds, mutual funds and other financial institutions."
http://online.wsj.com/article/SB125167422962070925.html

CIT was the big boy of the industry.

[Joanne98]

1. This could rock the market tommorrow. I'll be up early watching futures!

[AllentownJake]

3. Market should be ok

Firms with large commercial real estate holdings or loans should take a hit. Other areas should be immune.

[Ikonoklast]

4. Friday's losses were part of the expected news, I think,

CIT declaring wasn't totally unexpected, but it may have been kicked down the road as far as it was going to get.

[AllentownJake]

5. Most of Friday's losses

were due to the Bureua of Economics Analysis September report which showed spending down and savings back up.

Everyone expected Lehman to crash but it still spooked the market when they did. This should be sector specific though, I only expect banks with commercial real estate exposure to take a hit.

[Ikonoklast]

6. Was the September report the real reason, or was the market just

looking for an excuse for a pull-back? CIT has been like a black cloud floating around in the background, just waiting for the right moment to burst.



The market was going to fall anyway, at least that was my take on it. That run to 10K was fueled by a lot of moonbeams.




Some fortunes will be made on snapping up cheap real estate in this country, but I don't think commercial real estate will be part of that party any time soon.

[AllentownJake]

7. The fall on Friday

was probably a mixture of profit taking, the consumer spending numbers from September, and probably some of CIT.

General Mills, Microsoft, Home Depot, and Goldman Sachs are all down.

Goldman by over 4% Home Depot by over 3% General Mills by nearly 2% and Microsoft by around 1%

So there was some overall correction and it appears industries closer to CIT were down greater.

[Jkid]

2. Welcome to Hell, Ladies and Gentlemen. We created the Devil.