US - Commercial Real Estate & Reits

[winston]

Not vested.

A SMALL BULLISH SIGN FROM THE PROPERTY MARKET

by Brian Hunt

Today, we look at one of the most interesting trends in the market right now: The strength in "IYR."

IYR is the ticker for one of the market's largest and most liquid ways to buy commercial real estate, the iShares Real Estate ETF.

This fund is loaded with America's largest owners of apartments, office buildings, warehouses, and shopping malls. It reached a speculative peak in February 2007.

Then, as we predicted in July 2007, commercial real estate was clobbered. IYR lost 30% of its value and reached a low this July. But in the past few weeks, as news of Wall Street's bankruptcy dominated the wires, IYR held like a rock. It's a small bullish sign from the property market.

We can't know exactly how the mortgage debacle will play out. Another terrible leg down could be around the corner... or America could slog out the weakness for years.

We can, however, get clues from the forward-looking stock market about the state of things. In this case, the market is saying, "July was the worst I could throw at commercial real estate. Even the demise of Wall Street couldn't send it lower."

We see this action as a small ray of light peaking through the clouds. And we're keeping a close eye on IYR.

Source: Daily Wealth

[winston]

Not vested.

GET READY TO READ AWFUL THINGS ABOUT REAL ESTATE by Brian Hunt

On July 16, 2007, we ran an essay called "Commercial Real Estate is Starting to Crack."

We argued that real estate was expensive... It was offering tiny yields to reward investors... And most importantly, real estate share prices were turning down, so the trend favored a bearish bet. But we didn't think we'd see the collapse shown by today's chart.

Today's chart is the past two years of the iShares Real Estate ETF. This fund consists of America's largest owners of shopping malls, office buildings, warehouses, and apartment buildings. It's down 63% from its 2007 high ... and down 44% in the last month.

The stock market is a giant prediction machine. What happens to stock prices today shows up in earnings releases and headlines six months from now. As you can see, the market is saying, "Get ready to read awful things about commercial real estate. Really awful things"

[winston]

THE BIGGEST RED FLAG RIGHT NOW by Brian Hunt

Today's chart is the world's most shocking chart: the past three years' trading in the iShares Real Estate Fund (IYR).

IYR is comprised of America's largest commercial property owners and operators. Major holdings include ProLogis (largest warehouse operator), Simon Property (largest retail-space owner), Boston Properties (largest office-space owner), and Equity Residential (largest apartment owner).

From 2000 to 2007, this fund was a wonderful investment. Real estate prices were buoyant. Financing for new construction and expansion was available everywhere. Demand for retail, office, and warehouse space was healthy. But like all good parties, folks got carried away with this one... so we "sounded the bell" on commercial real estate over a year ago.

As you can see from today's chart, these companies are in total freefall right now... down 58% in just the past two months. This is an absolutely stupendous drop for the bluest of the blue-chip property owners. As our colleague Porter Stansberry has been saying for months now, "If you're looking to bet on companies headed for bankruptcy, look at commercial real estate."

[winston]

THE 'BIG PICTURE' IN COMMERCIAL REAL ESTATE by BrianHunt, Daily Wealth

Today, we take a look at the "big picture" for one of America's most troubled sectors... commercial real estate.

Commercial real estate is the blanket term used for office buildings, warehouses, shopping malls, and apartment buildings. As we predicted in mid-2007, it's had a rough couple years. The big commercial real estate fund (IYR) fell 75% from peak to trough.

It's the classic "credit crunch" story here: Years of easy money and cheap credit helped players get overleveraged and in over their heads. A lot of smart analysts believe things will get much worse in the sector as it works through years of excess capacity and debt.

The government is fighting the decline in commercial real estate with the same weapons as the decline in residential housing: by making money and credit available to all kinds of borrowers. This "reflation" effort has helped the IYR climb 77% off its lows. So... who's going to win? Reality or the government? We're guessing the government will offer so much credit that it "papers over" the problem with inflation. But we'll keep an eye on the IYR. If this fund breaks below the $25-$30 area, we'll know this bust isn't over.

[winston]

Why This Real Estate Bust is Different by Gary Halbert

IN THIS ISSUE:

The Commercial Real Estate Bust 2.0
Why This Real Estate Bust Is Different
Who Will Refinance $3.5 Trillion in CRE?
REITs & ETFs to the Rescue?
Conclusions: Look Before You Leap

http://www.investorsinsight.com/blogs/f ... erent.aspx

[winston]

The commercial real estate crash has officially begun
By Dan Ferris in the S&A Digest:

The commercial real estate debacle is in full swing, and banks are feeling the pain...

Based on its huge and disastrous investments in commercial real estate, I recommended my Extreme Value subscribers sell short Zions Bancorporation earlier this year, when financial stocks were rallying strongly.

My second stab at the short sale is up 22% since July. Zions' stock hit $20 in the rally, and today sank to less than $13. I still fear that one of its eight western subsidiaries is going to be visited by the Night Stalkers, the FDIC workers who show up on Friday evenings to shut down insolvent banks.

The two other financial shorts I made earlier this year didn't work out the first time around. I was too early. But the underlying economic reality of the two companies is plain for all to see.

Smithtown Bancorp surged to more than $14 in April, but now trades for less than $8. Smithtown grew its loan book by more than 70% in 2008, a terrible year to make so many new loans. Unemployment and bad underwriting should continue to punish the stock.

MetLife, the biggest life insurer in the country, hit $41 in September, but has now backed off to the mid-$30s. MetLife owns about $46 billion of residential mortgage-backed securities. It says the fair value is $43.4 billion, merely 6% less than its cost. I bet it has another 20%-40% of value left to lose.

MetLife's commercial real estate loans don't have to be marked to market, but its residential mortgage-backed securities (RMBS) do. As foreclosures continue to rise and rise, RMBS portfolios, including MetLife's, will suffer steep, quick losses, similar to the way subprime mortgages caused collateralized debt obligations and other securities and derivatives to suffer huge losses.

[winston]

Commercial real estate storm gets closer to shore: Defaults rising
From 24/7 Wall Street:

There have been warnings for months that commercial real estate defaults would be the next plague to bank earnings. Then Dubai indicated that it would default on some of its obligations. The kingdom in the desert has vast commercial real estate holdings around the world.

New research shows that default rates were already rising sharply in the middle of the year. According to the FT, “During the third quarter the commercial default rate rose from 2.88 per cent to 3.4 per cent, the highest level since 1993.”

http://247wallst.com/2009/12/01/commerc ... ults-soar/

[winston]

Kanjorski Admits There Is A "Growing Bubble In Commercial Real Estate" As S&P Observes Recognition Of CRE Losses Could Wipe Out Banking System by Tyler Durden

In a note released earlier, Congressmen Paul Kanjorski and Ken Calvert stated that they are launching an "Effort Urging Federal Regulators to Address Growing Commercial Real Estate Market Concerns" which will focus on the economic implications of the "deteriorating conditions in the commercial real estate."

Luckily, Kanjorski bypasses the spin cycle and calls the repeat CRE bubble by its proper name:

http://www.zerohedge.com/article/kanjor ... s-could-wi

[winston]

Bailout panel cites commercial real estate danger

Bailout watchdog: Billions in commercial real estate losses could threaten banks and economy

DANIEL WAGNER
AP News

Feb 11, 2010 00:07 EST

Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.

Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.

The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.

Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.

The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.

Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.

Banks often lent too much for land and buildings whose prices were inflated by a real estate bubble. They also relied on rosy assumptions about the profitability of retail and office projects and did not consider the possibility of a severe recession.

Commercial property values have fallen more than 40 percent in the past three years, the report notes.

Some have been unable to pay the loans. Others have stopped paying because they now owe more than the properties are worth. Losses are mounting for banks, more of which will close. That could spell trouble for the economic recovery, said Warren, a Harvard law professor.

"If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery," she said.

Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

The report attributes the looming crisis to failures of bank management and supervision. It says banks made loans based on property values inflated by the real estate bubble. They sometimes acted carelessly "in a rush for profit," the report says. Banks and their regulators failed to consider the possibility of reduced consumer demand from a severe recession, the panel says.

The panel criticizes the Treasury Department and bank supervisors for not putting smaller banks through "stress tests" like those done last year on the nation's 19 largest banks. Warren notes that Treasury Secretary Timothy Geithner resisted calls to conduct public stress tests of smaller banks.

The Treasury Department referred to comments by Geithner that bank regulators routinely conduct such assestments confidentially.

Warren also noted that last year's tests gauged banks' strength only through 2010. The commercial real estate threat looms largest in 2011 and beyond.

The report says loan failures could weaken the financial system because banks that fear major losses will be less likely to lend. Economic recovery depends on the free flow of credit.

The report offers no specific recommendations. But it calls on the Treasury to enact a comprehensive plan to handle the expected crisis.

The bipartisan panel is one of three oversight bodies Congress mandated for the bailout at the height of the financial crisis in October 2008. It makes periodic assessments of how the government is managing the rescue program.

The bailouts also are subject to review by the Special Inspector General for the Troubled Asset Relief Program and the Government Accountability Office.

Source: AP News

[winston]

Plans to Hide Commercial Real Estate Losses Won’t Avert a Double-Dip Downturn
By Shah Gilani, Money Morning

Sooner or later, mounting losses on commercial real estate could crash through the market's 2009 optimism and send the economy and stocks into a double-dip downturn.

The major problem is that lawmakers and regulators are setting up investors into believing that commercial real estate (CRE) losses are being effectively addressed. The truth is that escalating losses are being hidden as part of a campaign of optimism in a desperate gamble that a robustly reviving economy will save the day.

To protect yourself from another investment beating, here's what you need to know.

http://moneymorning.com/2010/02/23/grow ... te-losses/