Monday, December 22, 2008

Commercial real estate wants bailout money

The biggest property developers now want bailout money-hotels, shopping centers, and shopping centers are looking for money, because no one wants to roll over their debt.

Why should they? Unemployment will force vacancies, rents will come down, and the leverage in real estate will make these loans non-performing.

Maybe the should just learn from Trump-declare a Force Majeur and say it's an act of God!

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.

A recent letter sent to Treasury Secretary Henry Paulson, and signed by a dozen real-estate trade groups, painted a bleak scenario: "Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans," said the letter. "For many borrowers, [credit] simply is not available," the letter noted.

The play on commercial real estate heading south is the ultra short real estate ETF (SRS 58.76), which can be bought under 55.