Commerical real estate losses to slam GE Capital in 2010
Editor’s Note: A 13% drop in commercial real estate may be too conservative still for 2010. I keep hearing very bullish comments from analysts but we still have interests at records lows and that can not go on forever. Unemployment did notch down because of seasonal jobs but that still is not a permanent change and some of that gain was from the birth / death adjustments as well so I am not convinced we are out of the woods yet.
Commercial real estate losses have reached out their anti-Midas Touch and tapped the General Electric Co. The financing arm, GE Capital, is looking down the barrel of $7 billion in unrealized losses for 2009. The company announced on its annual investor day that GE Capital is anticipating a 13% drop in next year’s commercial real estate values.
How A Government Bailout Created Today’s Commercial Real Estate Crisis
Editor’s Note: This is a piece that covers a decent span of time and shows some of the events and regulations or deregulation that took place to create the current situation in the U.S. commercial property market. A majority of the bank failures in 2009 had to do with overexposure to commercial loans connected to real estate.
Business Insider - In a pattern familiar from the housing crisis, the value of commercial real estate has been plunging while the volume of distressed commercial real-estate loans is rapidly rising.
U.S. commercial real estate to bottom in 2010 according to survey?
Editor’s Note: This is the most optimistic survey so far on the U.S. commercial property market. We have seen an estimate as far as 2016 for a recovery. If we are looking at unemployment not peaking until “atleast” the second quarter of 2010 (I believe 2011 or 2012 to be realistic), I don’t see businesses going out and signing new leases for space or purchasing buildings when there is still so much uncertainty.
Our stock market has some quite robust growth rates (3-6%) priced in so until we see some real growth that is not supported by the government and the jobless numbers start coming down, in my opinion this survey is just painting a rosy picture that doesn’t have any meat behind it. Here was my favorite quote, For developers of new projects, the advice is blunt: Write off 2010, as well as 2011 and probably 2012. “You can close up shop, hit the links,” the report said. “Forget about construction financing — that’s a pipe dream.”
CapitalSource posts $274 million loss citing commercial loans
Editor’s Note: Most interesting piece of this news piece is that they increased their commercial loan loss reserves by over 100% . This tells me they are anticipating many more losses going forward from their commercial loan inventory.
Business Journals, Washington D.C.:
The company’s $221 million third quarter loan loss provision, which it set aside to cover loans that may have to be written off, was double the $110 million loss provision it posted a year ago.
“Despite declining charge-offs [compared to the second quarter], we increased our general provision for commercial loan losses this quarter in light of continuing stress in our commercial real estate portfolio,” said John Delaney, CapitalSource chairman and CEO in a statement.
The company’s overall assets were $14.2 billion, down 23 percent from the beginning of the year.
Source: Business Journal
“Double Bubble” means the commercial real estate is next to pop
Editor’s Note: The calls are getting louder with MSNBC taking about the impending collapse of the U.S. commercial real estate market. In the article they quoted that in 2006, 54% of the regional and local banks portfolios were made up of commercial loans compared to only 40% a decade before.
With values declining, many commercial loans coming due over the next 5 years and a much smaller appetite on investors behalf for this type of paper. The industry is going to have some serious troubles with these loans that were written at high valuations seen during the peak of the real estate bubble.
We will see if Congress is going to sit back and let this market implode on itself or will it come to the rescue again and provide financing to save these note-holders? My bet is “yes”
That big whoosh you’re hearing is the air rushing out of a commercial real estate bubble.
More than two years into the worst housing crisis in decades, commercial real estate is shaping up as the second half of what some are calling a “double bubble.” Owners of shopping malls, hotels, office space and apartment buildings — and the bankers who financed them — face a major crunch over the next two years as the mortgages on those properties start coming due.
Much like homeowners who now owe more on their mortgage than their house is worth, many commercial property owners have seen the value of their properties plummet, increasing the risk of default on hundreds of billions in commercial real estate loans.
Regulators give guidence to banks on troubled commercial real estate loans
These banks are going to need to start restructuring these deteriorating commercials loans or risk defaults and even larger write-downs. That will lead to the FDIC stepping in and closing the bank. I am surprise the banks are not lobbying Congress more loudly to get a program in place to refinance these loans.
The problem I assume that are making the commercial banks reluctant to restructure these loans are the fact that they were written at a higher level of valuation and if they have to rework the commercial loan to a lower valuation, the bank will need to write down their capital and that would in effect lower their capital reserves and would bring them closer to being in a situation that the FDIC would close them down.
This is why I am more convinced that once our regulators are ready to confront this problem, they will create a government sponsored program to refinance these commercial loans and in effect that would bring them off the balance-sheet of these commercial banks without making them a much higher risk of being shut down.
Even the regulators in the press release said even though there are signs of sectors in the economy recovering, it remains fragile.
Capmark Financial preparing for bankruptcy soon
Editor’s Note: After reading the tone of this press release, it comes to my attention that this bankruptcy might of been part of the plan so they could reorganize the debt and later down the line become profitable because the debt was at a much more manageable level. It would be hard to believe with the U.S. residential home market deteriorating that they could of not seen the commercial real estate market following suit. It will be very interesting to see how this plays out down the road.
Reuters, New York - Capmark Financial Group Inc., the commercial real estate company created through a 2006 leveraged buyout of certain GMAC assets, is preparing to file for bankruptcy possibly by the end of next week, according to a source with direct knowledge of the situation.