johnthebear

The Coming Depression in Commercial Real Estate

It will be interesting to see on May 4th if "off balance sheet items" are required to be shown on the balance sheets of the 19 largest banks?

If that happens as I expect it will, almost all of the biggest banks will require extra capital to survive.

This means that lending capacity to aid REIT's short term cash needs will not be available. Look for more huge stock sales of REIT's so that dividends can be paid.

Look for IYR to take a big hit, even at this low level.

off-balance sheet items Definition | Business Dictionaries from AllBusiness.com

The Murky World of Off-Balance-Sheet Items (Part 3) -- Seeking Alpha

PEU Report: Off Balance Sheet Items: Big for Banks

Does anyone have a clue of what "OFF BALANCE SHEET" items means? Bloomberg reports that the range is from $700-900 Billion dollars!!!

I remember ENRON had a lot of "off balance sheet items that the public did not know existed, which led to it's dramatic death.

The stress test is supposed to require these items to be revealed to the public and they expect most of the 19 banks to need more capital!

Looks like a busy week ahead trying to unlock this story.

Housing Market Tracker - Commercial RE May Falter, but CMBS Looks Tempting

It was reported that General Growth Properties and Simon Property Group are planning to sell shares to raise cash, which would dilute current shareholders value. This is comparable to a recent experience in England. The press in England reported that capitalization rates in England were lower than mortgage rates and the REIT was forced to sell shares to raise cash for redemption's. With rising mortgage rates and thus cap rates, it will be difficult to sell even prime office buildings that are fully leased without significant discounts.

In looking at the balance sheet of Simon Properties, the long term debt was reported to be $19 billion in real estate which was financed with $17 billion in long term debt. I question the terms of the long term debt. Moody's reported in the first half of 2007 that 59% of the mortgage debt for commercial properties was interest only! They also reported the loan to value ratio was typically 110% or more. Talk about leverage!

So, the reason for the sale of shares may be that the short term, interest-only loans at substantially higher interest rates have pushed Simon to the point of collapse. Could this be true?