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 Posted: Fri Oct 30, 2009 11:34 am |
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deflation, its driven by a lack of demand, demand is wage driven: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
remember, the last 30 years under conservative economics, demand
which is wage driven, has been destroyed for short term gain for a
few, to the detriment of the many.
commercial property is leased to companies that cater to workers who
make enough money to service debt, consumes, and save.
that all ended in 1981. cheap credit was extended to compensate for
plummeting wages. now the jig is up.
http://www.bloomberg.com/apps/news?pid=20601087&sid=amPXzjQV3nGQ
Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash (Update2)
By John Gittelsohn and Thomas R. Keene
Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said
today the U.S. is in the beginning of a “huge crash in commercial real
estate.”
“All of the components of real estate value are going in the wrong
direction simultaneously,” said Ross, one of nine money managers
participating in a government program to remove toxic assets from bank
balance sheets. “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.”
U.S. commercial property sales are forecast to fall to the lowest in
almost two decades as the industry endures its worst slump since the
savings and loan crisis of the early 1990s, according to property
research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial
Property Price Indices already have fallen almost 41 percent since
October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the
Central European University in Budapest, said a “bloodletting” may be
coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor
for the world economy,” said Soros, 79.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross
& Co. LLC, said in an interview on Bloomberg Radio that he would use
“extreme caution” before putting money into commercial real estate,
especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the
third quarter, while shopping center vacancies climbed to their
highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross
said.
As of Oct. 15, Ross said he had spent less than $100 million of at
least $1.5 billion available to him under the Public-Private
Investment Program, an investment pool of private and government money
for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase retail mortgage-backed
securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5
billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group
LLC and TPG led the group to buy the assets of the Chicago-based
lender, which was seized by federal regulators Sept. 11 after its
investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market,
winning an auction for the home-loan servicing unit of Melville, New
York-based American Home Mortgage Investment Corp. He agreed to pay
between $435 million and $500 million for the right to collect
payments and maintain escrow on about $45.3 billion of home mortgages.
Dubbed the King of Bankruptcy by clients during his quarter century at
the Rothschild investment bank, Ross entered the U.S. home mortgage
business as an increasing number of borrowers quit making payments and
profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we
can think of that’s either wrong with the industry or that we just
plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this
industry, what would we do to fix each one of those problems?” he
said. “Once we feel that there is a reasonable likelihood that the
second chart kind of equals the first chart, that’s when we get ready
to do something.”
To contact the reporters on this story: John Gittelsohn in New York at
johngitt at (no spam) bloomberg.net; Thomas R. Keene in New York
tkeene at (no spam) bloomberg.net.
Last Updated: October 30, 2009 12:48 EDT |
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