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Where’s That Cracking Sound Coming From?
by Robert Williams, Publisher
Wednesday, November 18, 2009
When I saw the latest cover of BusinessWeek – “Why the Commercial Real Estate Crisis Looks So Scary” – I immediately fired off a text to my friend and Investment U colleague, David Fessler.
“We scooped ‘em by six whole months,” I texted.
Dave’s been tracking (and cautioning us about) the commercial real estate market for the better part of a year now. (You can read Dave’s June article on the commercial real estate fallout or his April article on the commercial real estate sector.)
“Last year, commercial real estate sales fell off a cliff, plunging 73%… But it’s going to get worse… much, much worse,” asserted Dave, months ago.
He nailed it. The market is indeed cracking.
BusinessWeek reported that $6.4 billion worth of commercial real estate investments didn’t qualify for refinancing during the first 10 months of this year. And 30 U.S. cities now have over $1 billion in troubled commercial loans versus only eight in such cities a year ago.
The percentage of delinquent commercial mortgage securities sits near 4%. (It was less than 2% when Dave penned his first article.)
What’s particularly ominous, however, is that collectively, banks are holding roughly $1.7 trillion in commercial loans on their books.
Worse still, roughly $1.4 trillion in derivatives – you know, the financial weapons of mass destruction that crashed the residential market – underlie the loans, too. Ugh. Should the market for these securities go bust, we could all be on the breadline within a month.
But don’t move all your assets offshore yet. With little fanfare, the Fed just intervened.
We’ll give a full report as the situation warrants. For now, just make sure you don’t own one of the overvalued stocks discussed in Marc Lichtenfeld’s article.
Ahead of the tape,
Robert Williams
- Commercial Real Estate Crisis: It’s nice to be first
- Dow 10,000: Buy it, Or Sell it?
- With All the Cash Gone… Now What?
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In addition to once being a full-time trader of equities and equity derivatives, Robert Williams has served as the lead financial analyst for a Forbes top-50 private corporation and an analyst for the endowment of a major academic institution. He's also been profiled in such books as Trade with Passion and Purpose and Alexander Green's The Secret of Shelter Island. 
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November 25th, 2009 at 10:34 pm
yeah,BusinessWeek reported that $6.4 billion worth of commercial real estate investments didn’t qualify for refinancing during the first 10 months of this year.
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