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Commercial Real Estate: The REITS Will Mop It Up
Keeping the Powder Dry Public Money REITs have raised more than 15 billion since June. The FTSE NAREIT Total Return index is up 37% in 2008 and almost 50% since then. This is early money and probably speculative. In fact the commercial mortgage crises/real estate crises will continue to unfold over the next few years. Default rates will continue to rise as many who bought in the last five years are facing a different world. More vacancies and lower rents have seriously impacted value. Im not sure there is strong interest in refinancing these properties. After all, the lenders are in the midst of a fragile recovery and this is big enough to cause us to do a double dip. Even Bernankes recent declaration that we are technically out of the recession is qualified. Everyone is looking over their shoulders regarding how the banks will fare and how many will walk away from property that is under water and has little chance of returning to the original purchase price. The default rate for multifamily mortgages held by FDIC-insured commercial banks and savings institutions increased from 2.45 percent in the first quarter to 3.13 percent in the second quarter. A year earlier, the second quarter default rate was 1.20 percent.Most expect this to get worse. But the really big money is starting to build cash to buy. As someone recently said, we havent yet turned the corner, but the turn signal is on. Foreign Money China's $300 billion sovereign-wealth fund is eying big investments in distressed U.S. real estate, namely mortgage securities backed by office buildings, hotels, strip malls and other commercial property. Foreign real estate investors say they expect to see a recovery in the U.S. real estate market by the end of the second quarter of 2010, according to the Association of Foreign Investors in Real Estate Our Money The U.S. property market is appealing to the Chinese partly because of the financing being offered through the PPIP program. The Treasury will co-invest with funds that buy toxic mortgages tanking bank balance sheets. Seems the only way to get the secondary markets rolling again is to give it away. The Treasury and the Fed will make financing available for these co-ventures. In other words, CIC and the Treasury would be partners in borrowing money from the U.S. government to buy troubled mortgages. Proverbs 20:14 - Its no good, its no good! says the buyer; then off he goes and boasts about his purchase.
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