The Commercial Real Estate Crash Is On

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It’s not too tough to find out that there is something amiss with commercial real estate. A quick walk around Manhattan does the trick, seeing the amount of prime first floor retail space currently seeking offers. The same is true when reserving a room in a hotel more expensive than a Super 8. I was in Boston for work a month ago and stayed in the hotel I usually use and the room that cost me (or rather, my employer) $375 two years ago was going for $149 and the parent company of the hotel was offering a “stay 3 days get one free” deal. However, the anecdotal evidence is nothing like a chart of hard numbers. Here's one:

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Now that, friends and neighbors, is a steel-toe-boot-to-the-gonads chart if I’ve ever seen one.
The word “freefall” comes to mind. Also, the text below the chart states matter of factly “July 22 , 2009 update: The latest results of the Moodys/REAL CPPI show a return of negative 7.6% in May for the all properties national index.”
Probably a better way to write that would be “HOLY #!” but I guess that’s not really MIT’s style.
In addition—and I downloaded the spreadsheets to check this—that number is not annualized or year-on-year rate of decline, which is the way many top down economic numbers are reported.
For example, when you hear that GDP “contracted 2% in the last quarter” what that means is that GDP contracted at a rate that would generate a 2% decline over a full year, or roughly .5%.
The MIT/Moodys number is 7.6% down for the month of May alone, which seems really awful until one looks one cell up in that spreadsheet.
Said cell cheerfully informs us that April was down 8.6%, meaning that two months in 2009 wiped out the same percentage of value that go-go 2005 was able to add.
Put another way, if you were foolish enough to by a $100 million office tower on March 31, 2009, you now own a property worth about $84.5 million, which is a pretty rough couple of months in my book.

The real reason, one has to guess, is that only AAA securities are eligible for TALF funding. So, thanks to the new Laurel & Hardy ratings the gubment will be loaning money on highly generous terms to the same sharpies who cooked those securities up, so that said sharpies can buy them back cheaper while risking very little of their own capital. In other words, we’re backstopping them as tax paying citizens.

Is this a great country or what?

exiledonline.com...

With more big and small businesses failing thanks to the economy and the financial institutions, I guess we shouldn't be surprised that there really is no recovery in the commercial realty markets. Recovery, what recovery?

Oh it's on.

Government's rose tinted glases arnt working so well anymore.

reply to post by Tentickles


hey where you been?
hope all is well

After 25 years in the business it's about time IMO. Your chart only shows how ridiculously stupid people have been in driving up the price of RE, especially in large cities. It happened with single family homes, it happened with condo's and it had to happen with commercial product. However, that opens a wide window of opportunity! I'm buying Walgreen's and CVS pharmacies at never before seen CAP rates!

What cracks me up is that people think this is a unique event in history. Does anyone remember 1989 to 1991? You, know that little thing called the Savings and Loan crash! Google Resolution Trust Corporation. Dallas, Denver, etc had skyscrapers empty.....we called them see through buildings....anyway, been there, done that....

It's a great life lesson....like walking into JC Penny's and buying clothing at $ 8.99 when you used to spend $ 100.00 at Neiman Marcus!

star, and flag. Yep the crash is getting closer.

IMHolyO people need to prepare for this fall, winter, and further out. I think until our govt. changes we are in for a rough ride. Death to the NWO

People - it's just a graph. Obama will fix it, don't worry!

This combined with the fed buying t bonds has pretty much put the peg in the sand hasn't it?

edit: and here in New Zealand the amount of businesses closing up/lease/sale/ etc properties is astounding. Never seen so many, plus the paper has now almost an entire page of bankrupt or similar declarations.

[edit on 11/8/09 by GhostR1der]