There were many different topics to talk about tonight. We started off talking about Citi Group and how it had done many deep dark business things that were in a way secretive to the American people.
Cities are now penalizing banks who don't take care of properties they foreclose on. This is a good idea I believe more cities should do. This keeps properties going to the pits and making other properties around look bad. The banks must keep the landscape looking nice and keep the house from being stripe of all copper or such things.
The next discussion we had was about CMBS. People are really concerned about commercial real estate. Many companies who have loans are under water and are going to refinance in the near future and lose everything if they don't have substantial amount of capitol to pay part of the loan.Property values have gone down 40%, vacancy rates are up, and rental rates are down. This is a worse case scenario for any owner. The article talks about how the government is not getting ready for this fall out and we need a plan. Many small and medium size banks will go down because of this. More than 60% if mortgages maturing in 2012 and 2013 are underwater. This is a very scary situation to think about. The major problem is its only beginning and will unfold in the next couple of years. The stress test on banks done by the government to make sure they are sound was only don to 2010 and not 2011 when its going to start to fall apart.
On the other hand their are institutional investors looking at investing in commercial real estate and other alternative investments. Which is contrary to the last discussion.
Also in the investment arena non-traded REITs are becoming very popular thing to invest in. 100,000 investors can offer these kinds of trades but only a few are actual selling them. It is very interesting because the non-traded REITs have had a higher return then traded REITs. REITs are what got us out of our last recession in the 80's and early 90's.
Many lenders right now are "extending and pretending." They know many loans they have made are not good, but they pretend the loans are okay and extend the loan so that the borrower will keep paying the loan as much as they can. All this is doing is delaying the inevitable. The banks don't want to reveal their financial situation to anyone or even themselves. Countrywide was the worst at doing this in the residential part of real estate, all just to say that they don't have bad loans.
The next article we talked about was where an asset based company in Toronto, Canada is buying an Addison office building that was foreclosed on by Wachovia. This area is where one of the first urban villages was done. This property was brought, even below replacement cost. Buying it so cheap makes a domino effect occur because they can charge lower rates than other places. Then the other offices could become unable to pay their expenses. Also the city loses money because the tax money received is lowered. Dallas is one of the best markets to buy property because of its good economy. Many investment firms are saving billions to buy these kinds of properties because of their dirt cheap prices. Another fact about DFW is that foreclosures hit 1649 for the year and $880 million in debt will be foreclosed on next month.
Atlanta leads the nation in bad CMBS special servicing loans. They have 226 problem CMBS loans. It's because they and weak underwriting loans; many of the loans are going to mature this year. A really scary statistic is that 85% of all CMBS loans will not be eligible for refinancing.
We also talked about the G7 countries and how they have a growing GDP debt. New growing countries will become big players in the global markets. China's growth will soon slow down.
The last thing we touched on were workouts. Workouts are a negotiation between the borrower and the lender to keep the property from going under. Institutions don't want to hold properties; an example is lenders can make changes to the loan to help the borrower like allowing just interest payments.
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