Bloomberg.com reports IMF Says U.S. Financial System May Need $76 Billion in Capital :
The U.S. financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to the results of International Monetary Fund stress tests.
Agreed. So far, not frightening. But what about this?
The IMF said about $1.4 trillion of commercial real estate loans will mature from 2010 to 2014, almost half of which are already “seriously delinquent,” with payments 90 days or more past due, or “underwater,” with loan values exceeding property values.
For some reason, that does appear at least a bit frightening. The article also says:
The IMF stopped short of recommending recapitalizing the banks it studied in the report. Instead, it urged regulators to monitor conditions, especially for smaller institutions with less market access.
Given the immense influence the U. S. has on the IMF, one can only wonder how severely an uninfluential country in similar condition would have been handled.
Sometimes being too big to be criticized is not good.
$700 Billion in delinquent commercial real estate loans frightens me. Of course, residential real estate is a much larger market. What unrealized, unaccounted-for losses in that field reside on various balance sheets?
Copyright (C) Long Lake LLC 20`0
Showing posts with label Commercial real estate. Show all posts
Showing posts with label Commercial real estate. Show all posts
Friday, July 30, 2010
Wednesday, March 3, 2010
Commercial Real Estate Values Declining in Real Time
The Markit website gives current prices on CRE. A CMBX price chart shown here for AA.3 is representative of a broad range of pools of different quality. Clicking on the chart will enlarge it.
Consistent with price and trend charts of Big Finance stocks, there was a surge off the bottom of a year ago, but poor price performance recently and from the peak about a year ago.
What values are "in" the stock market is of limited concern to me. The bigger issue is that demand is obviously very weak.
Nothing is ever clear, but given the rapid decline in such measures as ECRI's weekly leading indicator growth rate, the
continued poor velocity of money, it continues to strike EBR that too much of the positive economic statistics that show recovery from the worst of the depression is due only to Fed money/credit creation.
Thus the major trend remains with gold, in my humble opinion. That's the opposite of the 1980s and 1990s, when growth at least appeared to be more organic, with the kicker that declining interest rates goosed stock prices.
Copyright (C) Long Lake LLC 2010
Monday, July 6, 2009
San Fran Office Building Sells for 75% Below Replacement Cost
Courtesy of Calculated Risk comes a surprising bad headline, Sale shows San Francisco property values in free fall:
A downtown San Francisco office building that sold for $400 a square foot in 2006 has traded for just $172 a square foot, a 57 percent decline that industry experts see as an important milestone in establishing new, recession-era values for financial district property. . .
The sale, at a price that represents about 25 percent of replacement cost, represents the first San Francisco office building sale in a year. It is also the first “round trip” transaction where a property went from being sold at the peak of the market to deed in lieu of foreclosure to a new owner. Colliers International Executive Vice President Tony Crossley said the price “gives the market a data point it has been lacking.”
“This gives a benchmark that other owners and lenders can point to as saying this is what real estate is now worth in San Francisco and can adjust to accordingly. People can now look at their own building and say with more certainty what it is worth. It takes the nonsense out of it,” he said.
The article does not say when the building was built, whether its needs renovations, etc.
Copyright (C) Long Lake LLC 2009
A downtown San Francisco office building that sold for $400 a square foot in 2006 has traded for just $172 a square foot, a 57 percent decline that industry experts see as an important milestone in establishing new, recession-era values for financial district property. . .
The sale, at a price that represents about 25 percent of replacement cost, represents the first San Francisco office building sale in a year. It is also the first “round trip” transaction where a property went from being sold at the peak of the market to deed in lieu of foreclosure to a new owner. Colliers International Executive Vice President Tony Crossley said the price “gives the market a data point it has been lacking.”
“This gives a benchmark that other owners and lenders can point to as saying this is what real estate is now worth in San Francisco and can adjust to accordingly. People can now look at their own building and say with more certainty what it is worth. It takes the nonsense out of it,” he said.
The article does not say when the building was built, whether its needs renovations, etc.
Copyright (C) Long Lake LLC 2009
Monday, June 22, 2009
China's Real Estate Market Explained
Courtesy of a long Zero Hedge post, a seemingly credible article was referred to about Chinese residential real estate markets, the mindset of buyers/investors there, and the like, in China's Real Estate Riddle. It's not long and worth a read in its entirety. Here are the opening two paragraphs:
"The end is near!” That was the message top government expert Cao Jianhai delivered in April when he predicted that residential property prices in China will plunge by half in the next two years. He reasons that China’s recent run-up in housing—average prices have tripled over the past five years—is unsustainable given the huge volume of new apartments sitting empty throughout the country.
Mr. Cao’s forecast is pretty scary, and not just for homeowners. China’s banks may not have invested in risky mortgage securities like CDOs, but they make most of their business loans based on collateral in companies’ real estate assets, which frequently are pegged to the going price of nearby residential developments. If that collateral were suddenly cut in half, China could face a banking meltdown that makes the West’s financial crisis look like a walk in the park.
Given the L. A. Times article of several months ago detailing immense overbuilding in commercial real estate in Beijing, and suspicions that China has been speculating in the commodities markets, a coherent narrative has emerged that describes a major bubble in China.
Add bursting of a possible Chinese bubble or twin bubbles to the list of possible bits of bad things that could happen to roil either markets and/or real economies in future months.
Copyright (C) Long Lake LLC 2009
"The end is near!” That was the message top government expert Cao Jianhai delivered in April when he predicted that residential property prices in China will plunge by half in the next two years. He reasons that China’s recent run-up in housing—average prices have tripled over the past five years—is unsustainable given the huge volume of new apartments sitting empty throughout the country.
Mr. Cao’s forecast is pretty scary, and not just for homeowners. China’s banks may not have invested in risky mortgage securities like CDOs, but they make most of their business loans based on collateral in companies’ real estate assets, which frequently are pegged to the going price of nearby residential developments. If that collateral were suddenly cut in half, China could face a banking meltdown that makes the West’s financial crisis look like a walk in the park.
Given the L. A. Times article of several months ago detailing immense overbuilding in commercial real estate in Beijing, and suspicions that China has been speculating in the commodities markets, a coherent narrative has emerged that describes a major bubble in China.
Add bursting of a possible Chinese bubble or twin bubbles to the list of possible bits of bad things that could happen to roil either markets and/or real economies in future months.
Copyright (C) Long Lake LLC 2009
Sunday, June 21, 2009
Economic Reports from the Front Lines
Today, your intrepid blogger braved drizzly Beverly Hills skies and had breakfast with the founder of a medium-sized chain of jewelry stores in the Southern California region. Did this gentleman, who had long since given his stock to his descendants, see green shoots? More no than yes, unfortunately. To wit: Last year the company had become unprofitable. Their long-time bank pulled their line of credit for that reason only. The company had minimal need for short-term debt, financed their needs out of the founding family's pocket temporarily, and found a new bank. The old bank that stiffed them had a separate asset management division, which had no clue that it was about to lose a long-time client. (It would be good if these divisions communicated!) Anyway, enough employees were fired or otherwise had hours reduced so that the company is profitable again. The bad news is that sales still stink, probably down 15% from two years ago. Two major competitors have gone bankrupt in the past year or so, so all other things being equal, business should be up as migration to the survivors has occurred, and it is not noticeably up.
Furthermore, Beverly Hills and nearby less tony areas have immense amounts of high-profile empty commercial storefront for lease. It's a severe situation, and commercial real estate is a lagging indicator, suggesting worse to come. It was hard to look at all the rentable commercial space and not expect a prolonged time return to the prior peak level of economic activity.
Moving back to the home (Florida) front, a report from a banker with a major lender is that there are no green shoots. None. Refi activity has recently shrunk to near zero with the pop up in mortgage rates; home sales are horrible, and home prices are eroding. Other personal sources in California and Florida report no green shoots visible yet, either.
Perhaps other regions are more buoyant.
That's a quick report from the front lines. Here's a comment from one of the largest corporations in the known universe, General Electric, from Bloomberg.com, in GE Vice Chair Rice Sees No ‘Green Shoots’ in Orders:
General Electric Co. Vice Chairman John Rice said he isn’t seeing an increase in orders even as U.S. economic statistics suggest the world’s largest economy may soon shift to a recovery.
Furthermore, Beverly Hills and nearby less tony areas have immense amounts of high-profile empty commercial storefront for lease. It's a severe situation, and commercial real estate is a lagging indicator, suggesting worse to come. It was hard to look at all the rentable commercial space and not expect a prolonged time return to the prior peak level of economic activity.
Moving back to the home (Florida) front, a report from a banker with a major lender is that there are no green shoots. None. Refi activity has recently shrunk to near zero with the pop up in mortgage rates; home sales are horrible, and home prices are eroding. Other personal sources in California and Florida report no green shoots visible yet, either.
Perhaps other regions are more buoyant.
That's a quick report from the front lines. Here's a comment from one of the largest corporations in the known universe, General Electric, from Bloomberg.com, in GE Vice Chair Rice Sees No ‘Green Shoots’ in Orders:
General Electric Co. Vice Chairman John Rice said he isn’t seeing an increase in orders even as U.S. economic statistics suggest the world’s largest economy may soon shift to a recovery.
“I am not particularly of the green shoots group yet,” Rice said today to the Atlanta Press Club, referring to a phrase used by Federal Reserve Chairman Ben S. Bernanke that described signs of a nascent recovery. “I have not seen it in our order patterns yet. At the macro level, there may be statistics suggesting the economy is starting to turn. I am not seeing it yet.”
It is more than 3 months since Dr. Bernanke green-shooted (green-shot?). The stock market has responded with a major bull move. Yet the economist David Rosenberg points out that more than all the up-indicators in the Leading Economic Indicators were financial ones; the real-world indicators actually were slightly down in May. If Paul Krugman is correct that the U. S. is in a liquidity trap, then the financial indicators will overstate the future response of the real economy. Furthermore, both the LEI and the ECRI's indicators take rising commodity prices as positive signs. I question whether a rise in the price of oil is a positive leading economic indicator. Perhaps it was in the days when the U. S., Western Europe and Japan were the only importers of oil that counted. To the extent that the rise in oil price and that of other commodities relates to China using oil and the other commodities for its internal growth, it would appear that this is a positive leading indicator for Chinese GDP and a negative indicator for U. S. GDP.
One final observation: Much as the Street likes to speculate on the future with various indicators, the action of the Dow Jones post the 1932-3 bottom(s) in the market correlated closely with one variable: dividend payments. As companies resumed or increased dividend payouts after the Crash, stock prices rose; when dividends were cut after the 1937 recession, stock prices fell apace. In other words, investors need not neglect the facts they see around them. All the rest is guesswork about the future; and in the other direction, an over-reliance on historical precedent can also lead one seriously astray.
With many markets balanced between their 12-month high and low points, and with several sitting by their declining 200-day moving averages which are now intersecting with their rising 50-day ma's, there is lots to follow fundamentally and technically: a rare time of equilibrium in a variety of ways. Lots of pots a-boiling.
Copyright (C) Long Lake LLC 2009
Subscribe to:
Posts (Atom)