Mr. Soros is correct and it is the next shoe to drop with signs it is already in motion. Commercial real lagged behind the residential housing bubble in the U.S., I was told that it lags because once housing is built that makes a built in demand for additional commercial real estate and that makes lenders more open to lending on those projects.
If we see a 30% drop in commercial real estate, how it that going to affect the rest of the economy? We have already seen the 2nd largest shopping mall operator miss a bond payment and they look to be seeking some sort of protection. It will be interesting to see how this plays out, I am thinking another bailout will come to help refinance many of these notes coming due.
News (Bloomberg):
Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.
“Commercial real estate has not yet fallen in value,” Soros, speaking at a forum in Washington, said. “It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent.”
U.S. commercial real estate values have fallen 30 percent from the 2007 peak as cheap financing disappeared and the recession reduced occupancies, RREFF, the real estate investment unit of Deutsche Bank AG, said yesterday in its 2009 forecast. Total returns in a commercial property index used by pension funds may decline as much as 11 percent this year, the group said.
Soros, 78, said the risk of further declines in property prices is reason for the administration of President Barack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office.
“At that moment of enthusiasm, fresh out of the gate, he would have gotten that money, and then we could have recapitalized the banks the right way, which would be to draw a line over the existing past accumulated bad assets and create new banks on top of these old banks,” Soros said.
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