US Commercial Real Estate a Multi-Trillion Dollar Bloodbath in Progress
by ilene - January 16th, 2010 7:09 pm
US Commercial Real Estate a Multi-Trillion Dollar Bloodbath in Progress
Courtesy of Jesse’s Café Américain
Residential Real Estate in the US is in serious trouble, and a drag on the real economy. And yet it is holding up a bit because the Fed is buying over $1 Trillion in mortgage debt, presumably at artficially high prices to support it, and of course the too big to fail Wall Street Banks who were wallowing in the residential real estate bubble.
Commercial Real Estate is much worse, a bloodbath in progress. Down 42% and dropping with store, office and apartment vacancies soaring. And much of that paper is held by regional banks and REITs like Boston Properties (BXP), Vornado Realty Trust (VNO), Brookfield Properties (BPO), and a host of private firms and trusts.
Like the residential market, the pain in commercial real estate is not distributed evenly across geographic regions. So far the public equities have recovered reasonably after a breathtaking plunge, as compared to the SP 500′s decline from the top. I am watching them for an indication or at least a confirmation of a double dip, a potential next leg down in the real economy and the financial markets.
I hope Ben is wearing a truss if he tries to put a floor under this one.
At least the rental market will be more economical for the foreclosed homeowners, but its hard to see who will be opening new retail stores and commercial businesses in the near future.
My Budget 360
Commercial Real Estate Is $3.5 Trillion Time Bomb Hitting the Economy
Some of you are probably not aware that the commercial real estate market has crossed a dreaded line in the sand. Commercial real estate (CRE) that includes apartments, industrial, office, and retail space is now performing worse than residential real estate. Not just by a little but by a good amount. While the CRE bust took about a year longer than the residential housing bust, once problems started hitting in this market prices have been steadily collapsing. At the peak, it was estimated that CRE values hit $6.5 trillion in the country. With $3.5 trillion in CRE debt outstanding, this seemed to provide a nice equity buffer. That buffer is now erased.
First we, need to examine the actual decline in CRE values by looking at data gathered by MIT: