Wednesday, October 14, 2009

CRE "failures:" A ripple, a wave or a tsunami?

Ask around. I have. Today's Journal has a story stating that Peter Cooper Village and Stuyvesant Town is in imminent danger of default (well, meaning two to four months), and that will be "signaling the beginning of what is expected to be a wave of commercial-property failures."

It could be. We keep reading and hearing about the coming crash. But then you have Harvey Green telling us that the shoe hasn't dropped and will stay on the foot, albeit unlaced. (H/T to Jeff Vinzani for pointing this out to me via Twitter.) Green's take is that lenders needs to get a little more to the center. (I agree that banks are still unwilling to lend in some cases.) That does not mean there will not be a disaster, but it does not have to be. I like his views on the state of the market.

My take? If there is no panic and people look at this smartly, then we'll have a market upset somewhere between a ripple and a wave. Many deals that "work" still need to be extended; there are plenty of good, cash-flowing assets out there (unlike sub-prime mortgages) that just need time. It isn't an extend and pretend scenario much of the time, believe it or not. And the deals that do not "work" need to be worked out sooner rather than later, one way or another. Why? Because that gets all the cash from the dry powder funds sitting on the sideline working. Everyone and his mother seems to have a vulture fund set up but nothing to buy. And I know I keep saying it, but: Lenders need to lend, with government back up on losses after a stop point if absolutely necessary. And borrowers? Let's just say everyone has to play ball.

Anecdotally, an informal poll of readers tells me that people are very busy. Now, that is admittedly self-serving. And people who are not busy are not likely to admit it to me. But I know not everyone is twiddling thumbs out there.

Yeah, there will be some pain. Of that there is no doubt. Will we have another crash a la the housing market? I doubt it and I certainly hope not. But who knows, there could be a tsunami in the commercial real estate market. Hopefully we've learned enough in the last eighteen months to keep that from happening.

1 comments:

Anonymous said...

David, thanks for your thoughts. I am both a dirt lawyer (construction actually) and someone with a vulture fund w/no roadkill, so my interest in this topic is more than casual. Bottom line, however, is that we can expect some sort of 'correction' in the next 3-6 months, as all the short-term notes come due and some of the holders can't get their acts together. Although I can understand the bank's 'emotions' about lending right now--I share them--lending is not my purpose in life, as it is theirs. They need to reach under the big mattress and start lending. --Mike Peters

 
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