Commercial Real Estate Apocalypse in 2011-2012

Anyone still claiming that this is just a business as usual downturn/recession is kidding themselves. Still standing by the fact we are in the eye of the storm and there is a lot more pain to come.

Everyday I see risks that could bring down the global financial system, risk of sovereign default, further stress via the options arms resets, commercial property problems, eventually one of them will trigger a meltdown. Credit will dry up worse than 2008. Will probably see currencies fail. Housing will fall dramatically (including in Australia).

Here is one of the risks quite intricately detailed if you've got a day to sit down and read the whole 190 pages :)

Commercial Real Estate Apocalypse in 2011-2012
Executive Summary

Over the next few years, a wave of commercial real estate loan failures could threaten America’s already-weakened financial system. The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.

The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010.

Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.

A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle.

It is difficult to predict either the number of foreclosures to come or who will be most immediately affected. In the worst case scenario, hundreds more community and mid-sized banks could face insolvency. Because these banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession.

FEB 2010 OVERSIGHT REPORT - Commercial Real Estate Losses and the Risk to
Financial Stability
 
Mate - send me a report as it pertains to Australia. Why were you reading this anyway?

The last line is hardly armageddon ie could extend an already painful recession (in Amercia)

Geez
 
I am part way writing a report for an Australian property problem and I'll be sure to post it here once completed, maybe that will be one you can enjoy. It won't be 190 pages though sorry.

I forgot that we are protected from global financial crisis. Our $1 trillion in foreign owed debt will never be at rollover risk due to external influences. We're an island, there be water between them and us. It's different here. Am I on the right track here aussierogue?
 
I am part way writing a report for an Australian property problem and I'll be sure to post it here once completed, maybe that will be one you can enjoy. It won't be 190 pages though sorry.

will it be anything like the ones that said australian property would tank as a result of a residential property bust in the us? I believed that, and my hopes were cruelly dashed.

There are always risks in the market. However, the less direct the cause, the harder it is to draw lines towards indirect effects with any sort of certainty. So if the mining boom collapses, it's much more likely that perth property will tank, for example. If commercial real estate in the US has problems (a very real possibility, as commercial loans have shorter loan terms and a combination of lower lvrs and lower vals will kill a lot of owners), though, it's much harder to draw the lines that end at 'australian property tanking', because there are so many things that can happen throughout that process.

If the last couple of years have taught us anything, it is that it is POSSIBLE for huge markets to go bust (resi prop in the us, iceland, banks), for the world financial market to all but freeze up completely, and for SOME areas / countries to still do relatively well. Not all of the US is suffering. Places with a lot of education, healthcare, government, defense, etc are doing fine. Even manhattan property is ok.

Will australia always rise above? Maybe, maybe not. But it's certainly possible. It might also flatline for a few years. Or it might shrug things off and keep booming. Everything is possible, little is inevitable, and certainly indirect effects are not inevitable.
 
will it be anything like the ones that said australian property would tank as a result of a residential property bust in the us? I believed that, and my hopes were cruelly dashed.
Actually it's subject material completely internal to Australia, covering the subject of 2009s FHB bubble (in numbers, leverage, not necessarily referring to home prices), will repeat and expand on some of the discussion points I raised in this thread (http://www.somersoft.com/forums/showthread.php?t=58932), facts/data will be from ABS, RPData, AFG, RBA, Fujitsu and similar. While the article will be from a biased viewpoint (aren't all reports/articles?) I hope that readers will read it and decide for themselves the effect on prices, I certainly don't expect all readers will see the data shows there will be an inevitable impact on prices.
 
I am part way writing a report for an Australian property problem and I'll be sure to post it here once completed, maybe that will be one you can enjoy.


Great stuff, you spend your time writing the report and I'll spend my time in the corner over here invoicing the Tenants for the rent. :)
 
Hobo - Jo

You are worse than keen mate. You post something supporting and arguement and then you tell us you are writing a report. Nice academic rigour dude. Viral marketing at its best!
 
Great stuff, you spend your time writing the report and I'll spend my time in the corner over here invoicing the Tenants for the rent. :)

oh you have to invoice tenants and collect rent? my investments are increasing in value without the need to do anything, so I have some free time on my hands ;). of course the original subject matter would be a touchy one for you, I certainly don't expect Australian commercial property to escape unscathed.
 
I just can't get my head around that mentality. So you're spending time researching, analysing and writing about a subject that isn't going to make you money or benefit you? Fine if you think property is no good, but wouldn't your time be better spent on analysing or writing yourself a report on how you think there is many $$'s to be made by investing in gold, oil, water, porcupine needles?

I get passionate about subjects too, whether it be investments or otherwise, but they are in one way or another going to benefit me and enrich my life. In the case of investments I spend my time on things that will make me money. For example I don't spend time writing a report on how I believe starting a DVD store venture will not be a long term successful operation due to the industry dynamics. I spend my time working on something that will make me money.

To each their own, but I just can't understand the thinking behind spending so much of your time on something that is not productive for you. Unless your a university type that likes to have papers published which is how you find your 'greatness'?
 
But Steve

We do need the balance..............as long as the information is sound and based on reality and not some Real Estate notion of Chicken Little like some folks in the past.

If we have just a forum of groupies thats not good either.

ta
rolf
 
To each their own, but I just can't understand the thinking behind spending so much of your time on something that is not productive for you. Unless your a university type that likes to have papers published which is how you find your 'greatness'?

Steve, some people just need to be "right".
Let them be "right".
I'd rather be wealthy and wrong that "right" and poor.
 
I just can't get my head around that mentality. So you're spending time researching, analysing and writing about a subject that isn't going to make you money or benefit you?
Not everything in life is about making money, personally I find the subject of housing in Australia quite interesting. People write movie reviews, etc, doesn't mean that doing so is going to benefit them in any other way than getting their opinion heard.

That said as I don't currently own property (and do intend on buying again in the future), a drop in prices is in my benefit ;)

Also I originally started writing it for the benefit of friends and family to try and warn them off buying property at this peak....
 
Not everything in life is about making money

...but this isn't a skipping through the daisies forum, and it's not a first time mother's tips on breast feeding forum, and it's not a how to build a billy cart and cubby house forum.

It's a property forum, with a strong emphasis on how to make money - both cashflows and equity, out of property...


I find the subject of housing in Australia quite interesting.

That's fascinating, but what has that got to do with this thread you started, and the predictive alarmist thread title ??

I don't currently own property

Indeed - I gathered that a while back.


As Rolf mentioned above...all opinions are highly welcomed. Hope you enjoy writing yourself a monumentous epistle.
 
Guys - im guessing he is an academic so therefore his research does have currency for him.
I'm flattered that you would think that aussierogue, but I work in IT and have never been to Uni.

That's fascinating, but what has that got to do with this thread you started, and the predictive alarmist thread title?

The thread title was Mish's not mine and came from the article linked.

In all fairness I didn't kick things off track and my offtopic posts have been mainly in repsonse to another.

This is the "Property Market Economics" sub forum is it not? Is there a requirement that all threads are specifically about Australian property?

On the first page I see a thread about a hedge fund investor and his views on Gold, discussion about fed emergency funds rate, a russian economic conference, doesn't seem all is local or even relevant to the subforum.

Pretty sad that some of you guys on here are so caught up in your own little pictures and aren't prepared to discuss anything further and in some cases even go as far as trying to belittle those that don't agree with your opinion.

Anyway this thread is way off course and seems no interest in the topic so might see if the mods can lock it.
 
Hobo jo - if you are not a student or an academic why on earth do you think you have any authority write an economics paper?

I know nothing about it so im not about to write a paper on windows vs linux
 
If we have just a forum of groupies thats not good either.

It's what you've got though Rolf.

Why would anyone not wearing a short skirt waving pom-poms choose to voice an opinion here? I rarely do now. (Wanna bet this post draws fire?)

As Hobo says we are in the eye of the storm now, and no-one knows where the damage will occur in the second part. I'm willing to bet it will no more be confined to the US than the first part was.

I'm trying to figure out where to be to survive it but it ain't easy. To say that Aus housing is bulletproof because it survived last time is heroic. :D
 
Based on some of the valuations coming in on my commercial book, i think the valuers have formed a view that is not particulrly optimistic, to say the least
 
Hobo jo - if you are not a student or an academic why on earth do you think you have any authority write an economics paper?
I know nothing about it so im not about to write a paper on windows vs linux
Authority? Last time I checked there was no license required to write an article or report and distribute it online...
Why would one need to be a student or academic to write on a subject they are well versed on?
 
Why would one need to be a student or academic to write on a subject they are well versed on?

Depends if you want credibility or not I guess. Credibility normally comes two ways:

- You have demonstrated a broad understanding of the issues through your qualifications that show you are aware of the full area of study and your history of publishing peer-reviewed independent research in respected journals on the topic that is of value to the academic community.

- You have a high net worth based on the endeavour you are studying.

Without one of those two it's just idle chatter. I lean towards the second one in importance but that's just me. Academic study always has something missing in terms of usefulness for investing - it's just not the same when you don't have skin in the game...

You could, of course, gain credibility through the pure strength of your argument or a documented long record of correct predictions. However, I am yet to see anyone actually achieve that so I regard it as pretty unlikely. There is always a counter argument for every proposition and in this field evidence is always lacking because, at the core of the problem, people are just trying to predict the future... and nothing can be proven until you get there, by which time it's all too late to be useful...
 
Top