Commercial Real Estate Closing Shop?
Housing-Market / US Housing Feb 21, 2009 - 02:46 PM GMTBy: David_Haas
As most of us who carefully follow the macro-economic picture know quite well - there is a certain logical “order” to things and that order has been accurately anticipated by some of us for a very long time. One of the things that's been looming dark-and-large on the economic horizon is the impending and apparently unstoppable hurricane that's about to hit the commercial real estate markets.
A short drive around most U.S. towns or cities will provide convincing evidence of the destructive power of the early “outer band” winds that are hitting the free-falling commercial sector. The vacancy signs that are rapidly appearing (important anchor-tenants like Home Depot, Circuit City, Linens ‘N Things, etc.) are foreshadowing the much stronger potential for severe damage from the storm itself. That storm is surely rolling on-shore now.
Take a few minutes to broaden your perspective on this topic by watching this important video:
Though I can't verify this with my own research yet, I've read that the “at-risk” commercial real estate market is, ultimately, much larger than the initial wave of residential mortgage failures that's already triggered the broad-spectrum melt-down we're experiencing.
By their very nature, commercial real-estate deals are often highly-leveraged (carrying high levels of mortgage debt) and the mortgages are held as “reliable income-producing assets” by many large pension funds - funds who rely upon this income to meet their increasing obligations. Uninterrupted cash-flow from rents and mortgage payments is, obviously, the glue that holds these deals together. That this threat could potentially be larger than the first wave of residential failures is a sobering thought.
It's no secret that a large number of pension funds are already reeling from many years of pursuing questionable actuarial assumptions and irresponsibly under-funding their future liabilities - problems being compounded now by severe recent losses in both bond and equities markets. Few, if any, pension funds are immune. If the rents and mortgage payments from their commercial realty portfolios slow to a trickle, who will bail out them out? I suspect we'll be hearing the familiar answer to that call soon enough on C-SPAN.
P+B+G+C = T+A+X+P+A+Y+E+R
Pension Benefit Guaranty Corporation
For more interesting articles and commentary please visit: http://www.haasfinancial.com
By David Haas
Consultant
In my consulting practice, I work with individuals, business owners, and professionals. I assist business owners and professionals in several critical areas ranging from business start-up, marketing, operational challenges, employee retention, and strategic planning to personal asset protection, financial, and retirement income planning. Often, these areas relate and need to be integrated to work most effectively. I also assist business owners in developing exit-strategies that enable them to maximize the value of their business interests and preserve their lifestyle in retirement. For individuals, I primarily focus on tax reduction, financial, and retirement income planning.
© 2009 David Haas, Consultant
David Haas Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
