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James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 25-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and... More
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    The website Calculated Risk always has great info. Below are some recent highlights about Commercial Real Estate. The picture for Commercial Real Estate is bleak. All segments are plunging. Prices are 35% below the peak. the most office space since 2001 is being delivered in 2009 when demand is the weakest in decades. Write-offs of commercial property loans will reach $30 billion in 2009. This will destroy hundreds of regional banks. The FDIC will be going into deficit by the end of the year. Malls are going under, apartment vacancies are soaring. There isn't a green shoot to be found. As consumers stop spending, retailers will go under, rent will not be paid to landlords, and loan payments to banks by the landlords will default. Banks will go under and you and I will pick up the tab again. None of this is in any of Obama's budget projections. It will be a complete surprise. Another shocker.


    Commercial real-estate prices fell 7.6% in May ... The indexes are down 29% from a year ago and 35% from their October 2007 peak. According to Moody's, CRE prices fell in 8.6% in April (about 16% in two months).

    U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years ... losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009. Many of the most troubled [regional] banks have heavy exposure to commercial real estate. In contrast to home loans, the majority of which were made by about 10 lenders, thousands of U.S. banks, especially regional and community banks, loaded up on commercial-property debt. Some analysts, meanwhile, worry that banks aren't sufficiently recognizing losses on their commercial real-estate loans, thereby exposing themselves to bigger losses later. ..."Net charge-offs to date have been highly inadequate," said Richard Parkus, head of commercial mortgage-backed securities research at Deutsche Bank. "This is clearly a problem that is being pushed out into the future."

    Many regional and community banks had excessive loan concentrations in Construction & Development (C&D) and CRE loans. The FDIC identified this as an emerging risk in 2006 - so it is no surprise. These smaller banks have been slow to recognize the related losses - possibly because many of the deals had interest reserves that mask the performance of the commercial building until the reserve runs dry. Then there is just more work for the FDIC.

    This graph graph shows the amount of office space delivered per year in the U.S. in millions of square feet since 1958. The over investment during the '80s (S&L crisis) is obvious, as is the office boom during the stock bubble.

    The red columns are based on projections from Costar for projects already in the pipeline. Although deliveries will be strong in 2009 (with all the projects currently under construction), CoStar projects new office deliveries in 2010 will the lowest since 1996, and deliveries in 2011 will be the lowest in over 50 years.

    The U.S. office market vacancy rate reached 15.9 percent in the second quarter, its highest in four years and rent fell by the largest amount in more than seven as demand from companies and other office renters remained weak, real estate research firm Reis said Inc. Factoring in rent-free months and improvement costs to landlords, effective rent -- the net amount of cash landlords take in -- fell 2.7 percent in the quarter to $23.42 per square foot. The second-quarter drop was more severe than the first quarter's 2.3 percent. Reis ... forecast [is] for the U.S. office vacancy rate to top out at 18.2 percent in 2010 and for rent to continue to fall through 2011.

    Nearly 16% of office space in Los Angeles County is sitting vacant as tenants close up shop or move out of expensive properties. Nearly a third of the space around up-market Playa Vista sits empty; office buildings in the Inland Empire and parts of Orange County are completely vacant.

    During the second quarter, the vacancy rate at U.S. strip malls reached 10 percent, the highest level since 1992, [Reis] said. ... asking rent fell 1.7 percent from a year ago to $19.28 per square foot. Asking rent fell 0.7 percent from the prior quarter. It was the largest single-quarter decline since Reis began tracking quarterly figures in 1999. ... effective rent declined 3.2 percent year-over-year to $17.01 per square foot. Effective rent fell 1.1 percent from the prior quarter.

    About 7.9 million square feet of space was returned to the market during the quarter. The amount was second only to the 8.1 million square feet in the first quarter. ... U.S. regional malls ... vacancy rate rose to 8.4 percent, the highest vacancy level since Reis began tracking regional malls in 2000. Asking rents for regional malls continued to deteriorate but at a faster rate, falling 1.4 percent in the second quarter, compared with 1.2 percent in the first. ...

    The vacancy rate for U.S. apartments reached its highest level in more than 20 years. The national vacancy rate rose to 7.5 percent ... The record high was 7.8 percent in 1986. "We are reaching that historic high very quickly," said Victor Calanog, Reis director of research. ... effective rent was down 1.9 percent from the prior year and 0.9 percent from the first quarter to $975, Reis said. "With general expectations of an economic recovery pushed back to early 2010 at the earliest, it seems likely that apartments will have to endure a few more quarters of distress, lower rents and higher vacancies," Calanog said.



    Jul 20 1:39 PM | Link | 5 Comments

    At the end of March CIT had $6.5 billion in cash, with debt due within one year of $17.1 billion. They had $7.4 billion of equity and $45.2 billion of long term debt, a debt to equity ratio of 86% debt, 14% equity. They've lost $3 billion in the last 12 months. This is before the earnings announcement coming on Thursday of this week which I'm sure will be a disaster. They make loans to small businesses. Small businesses are going under in record numbers. It is clear they were not running their business well before the crisis. The losses will continue to mount as the economic conditions continue to worsen. Only a fool would loan this company another $3 billion. Below are this list of fools. Or are they fools?

    The U.S. Government told CIT they would not rescue them last week. The U.S. Government has also awarded management contracts to various financial firms and has distributed billions in TARP funds to other financial firms. It appears that there are a number of firms that have received government contracts and/or TARP funds that have decided to rescue CIT. Did they decide to rescue CIT because they are an excellent credit and they will surely get their money back, plus 13% interest? What Risk Manager in their right mind would approve?

    My contention is that there are unspoken agreements with the U.S. Government that these firms will be taken care of for saving CIT. It would have been a public relations disaster for Obama to let CIT go down after saving a disaster like Citigroup. Many small businesses would have gone belly-up. Here are my questions:

    Did anyone in the Treasury make any assurances verbally or in writing that they would help these lenders in any way?

    Were these lenders pressured by the Government to make these loans?

    Was more business promised by the Government for saving CIT?

    Did the Federal Reserve put any pressure or make any threats or promises to these lenders?



    The U.S. Treasury named BlackRock Inc., Invesco Ltd. and seven other managers for its Public- Private Investment Program, in an effort to remove as much as $40 billion in distressed assets from financial institutions. GE Capital Real Estate, Marathon Asset Management LP and AllianceBernstein LP were also selected. Oaktree Capital Management LP, RLJ Western Asset Management LP, the TCW Group Inc. and Wellington Management Co. were the other firms selected to participate.


    Barclays Capital is arranging the funding, said another person familiar with the negotiations. The financing will carry an initial rate of about 10.5 percent, the New York Times said. Creditors including Boston-based hedge fund Baupost Group LLC, CapRe, Centerbridge Partners LP, Oaktree Capital Management LLC, Pacific Investment Management Co. and Silverpoint Partners agreed to provide the money, the Financial Times reported. CIT’s advisers, including JPMorgan Chase & Co.and Morgan Stanley, discussed with other banks about a debtor-in-possession loan to fund the company’s operations should it enter bankruptcy, people with knowledge of the matter said last week.

    Jul 20 11:48 AM | Link | Comment!

    JP Morgan reported a profit of $2.7 billion in the 2nd quarter. It was a farce. All of their consumer and commercial loan business is losing hundreds of billions. Indeed, the Financial Accounting Standards Board has made it possible for the biggest U.S. banks to book profits on loans that have not been fully repaid. “Called ‘accretable yield,’ these mega banks will book income on loans that have ‘reduced credit quality’ by recognizing the value of the bonds on their balance sheets and the cash flow those securities are expected to earn,” Fitz-Gerald said. “Please understand, we’re not talking about cash that’s already been earned, and not cash in the bank … we’re talking about cash flow those banks are expected to earn.” In JPMorgan’s case, the firm took on $118.2 billion in toxic debt when it acquired Washington Mutual Inc. last year. As a receiver of that debt, JPMorgan was allowed to mark that debt down to “fair value,” or  $88.65 billion. But now, the bank says that those same debts may appreciate by some $29.1 billion over the life of the loans. And as those loans are paid back, that money is booked as profit.

    GE Capital has hundreds of millions of commercial real estate loans on their books. They are booked at cost. If they were marked to market, GE Capital would have lost hundreds of millions in the quarter. Their $2.7 billion in profit is a fantasy. This company is a walking timebomb.

    Bank of America is hemmoraging losses in its loan portfolios. Lewis admits that they could lose $130 billion more. The profits are all created by accounting gimmicks. The FASB was forced to allow these criminal banks to not mark their assets to their true value. These criminals are valuing their own assets at whatever price they decide.

    Citicorp announces a $4.3 billion profit. It is a fraud. They sold Smith Barney for an $11 billion profit to just stay alive. The bank lost $6.7 billion in one quarter. This is with the fraudulent accounting gimmicks.

    The Federal Reserve is giving these banks free money and they still can't make legitimate profits. The only profits came from their criminal trading models that are bilking the average person on every stock trade.

    The shills on CNBC are sitting in the Hamptons talking about how great everything is. Wall Street and Washington DC disgust me. The lies and corruption are so rampant it makes you want to puke.


    For instance, consumer-loan losses continued to rise, as did losses on businesses loans.  Retail banking earnings of $15 million were down sharply from earnings of  $474 million in the first quarter, and $503 million in the second quarter of 2008. The consumer lending division reported a net loss of $955 million, compared with a net loss of $171 million in the prior year and $389 million in the prior quarter.

    Home equity charge-offs jumped 4.61% to $1.3 billion. The bank warned that prime mortgage losses may be $600 million “over the next several quarters,” and that subprime losses may be $500 million.

    Credit cards lost $672 million, compared to income of $250 million in the second-quarter last year. The bank warned that losses in its Chase credit-card portfolio may be 10% next quarter and will be “highly dependent” on unemployment after that. The unemployment rate rose to 9.5% in June, its highest level in two decades.

    The managed charge-off rate, which generally tracks unemployment, climbed to 10.03% from 7.72% in the first quarter and 4.98% in the year-earlier period.

    JPMorgan, the second-largest U.S. bank, said that that second-quarter profits were $2.7 billion, a jump of 36% from a year ago and 27% from the previous quarter.

    Jul 17 12:06 PM | Link | 3 Comments
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