Tuesday, September 16, 2008

Banks trying to unload commercial property debt (WSJ)

Last spring, securities firms and banks were able to sell commercial real-estate debt for discounts ranging from 5% to 20%, small compared with many residential mortgage securities. But that discount has been widening.

In other words, the smart money long ago 'cut and ran.' This real estate mania is over. Now we, unfortunately, have to deal with the downside.

late in the article:
It was in this climate that Lehman tried to save its neck by putting its $30 billion portfolio on the block last week. Lehman was hopeful because more than 70% of its whole loans were used to finance the relatively strong part of the real-estate market, such as offices, hotels, apartments and retail properties.

But the firm also had large amounts of debt tied to residential land, where values have been decimated. The firm negotiated into the final hour to sell the assets, but never reached a deal because it wouldn't cut its price enough, according to people familiar with the matter. And now comes the expected liquidation.


In other words, land loans are now being recognized as financing the derivative of real estate. In too many areas, homes are selling for less than the cost of construction. So land... is going to be a tough sell. But wait... CR has been blogging on the overbuilding of offices, hotels, and retail. Apartments are in that no-mans land. Not as overbuilt as other real estate, but having to compete with all of the FB's trying to rent until the "V recovery" that won't be.

If everyone is trying to get out... no one is trying to get in. This is going to further tighten the real estate noose. In other words tight credit will persist for years. So much for a quick job recovery...

Got Popcorn?
Neil

1 comment:

Adam Hartig said...

I am looking to obtain info on Commercial property that some of these fail institutions are selling off. Does anybody know where I can find a listing of these properties?