Monday, July 9, 2007

And others agree...

Check out posts from (with a chart showing the out-of-control prices in London). Goldman's putting $4 billion of German dirt on the market. But what is more interesting is this quote from

"As we are becoming known as the sage of the market for our startling predictions of "what happens next?", it is with great pleasure that last week the world was alerted to the great commercial property crash. With Goldman following our advice and Morgan Stanley starting to offload its worse performing property (which is most of them because rental income is below LIBOR) we are glad to be of service."

Rental income below LIBOR? For you civilians out there, that means the income from the property is less than the interest rates out there for commercial loans; e.g., you income on a property is 5.5% a year but interest rates are 6%. See a problem? (LIBOR is the "London Interbank Offered Rate -- the commercial loan equal to prime in the residential market.) Now, of course, there's the upside to long-term returns versus relatively short-term LIBOR contracts and a higher upside potential from holding land. But there's also much more downside potential.

Again, I don't think the sky is falling, but I will admit that I did some portfolio adjusting this morning.