Chris Marshall

Commercial Real Estate Headed the Way of Residential?

Thank you for your comments,

cap rates in NY are around 5.5% currently, I expect the GM Tower cap rate is around 5.75% - 6.00% ( This is my informed guess ).

A 10% cap rate is great, but difficult to achieve, they tend to be accompanied by short time left on the leases, which means that you may be stuck with a vacant building.

I agree with John regarding the European Pension funds, they are really struggling (I'm based in the UK). If we use the 9% cap rate as a yard stick, and estimate the current cap rate as 6% (for ease), then Commercial Real Estate may be 50% over valued. Potentially this could mean $1.66 Billion of Asset write downs!

I don't believe that they will fall this far, but if recession really kicks in, don't discount the possibility either. Financials are still a one way short bet at this current time, regardless of what the FED and Treasury say.

Chris Marshall

PS: Regarding GE, Did you know that one credit card co in India has a default rate of 16%, so don't bank on emerging markets coming to the rescue of the international banks, they appear to be as self obsessed and stupid, as the rest of us.

Commercial Real Estate Still in Fairly Good Shape

I agree that commercial property values have not fallen significantly yet. However, the lack of activity indicates that buyers are unwilling to transact at current levels. When the sellers become more realistic on values, properties will start to sell.

The FED is unlikely to reduce interest rates in the next 6 months, so unless the stimulus package works (which I doubt), any bad economic news will have a negative effect on equities and property prices.