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Commercial real estate woes

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Residential real estate isn’t the only over-valued market, at least according to PriceWaterhouse Cooper who issued a report Monday for the Canadian commercial real estate market:

“We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market,” Holly Allen, managing director for PwC’s real estate practice in Canada said in an interview.

“We think there are going to be foreclosures and default situations on some of the buildings.”

Allen said Alberta is particularly vulnerable, due to an oversupply of product and weak demand driven by tumbling prices for natural gas, which represents a significant portion of the province’s energy industry.

The report blames scarce money — and therefore limited buyers — for the sector’s woes. As well, it said, investors’ appetite for commercial mortgage-backed securities has dried up.

“The credit crisis and ensuing recession have dragged commercial real estate markets into very trying times, marked by value losses, rising foreclosures, and reduced property revenues,” Frank Magliocco, leader of PwC’s real estate practice in Canada, said in the report.

We seem to be facing a pessimistic outlook in many sectors, yet residential real estate here in Vancouver has defied expectation and had a mini-bounce lately.  Will the commercial sector likewise defy expectation?

Full article in the Vancouver Province.

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Deliverator

The Greenback Effect: http://www.nytimes.com/2009/08/19/opinion/19buffe… The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased. Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to… Read more »

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NO -LYMPICS

Fed Up With the Fed By Bill Jenkins August 17, 2009 Pylesville, Maryland, U.S. http://www.howestreet.com/articles/index.php?arti… Article shows how the Fed(US) was doing exactly as it wa planned, which was to protect the bankers and make the taxpayers foot the bill, "taxation via inflation" etc. This is smellier and more corrupt than I thought. =============== In addition, another party Dan Amoss, claims a major US bank , 192 years old with 37,000 employees will have its stock collapse. He will announce which bank on Monday August 24 https://reports.agorafinancial.com/ssronedollar/E… Here’s Why Dan Thinks This Bank Will Get Slammed It all boils down to a few very simple things. This bank made risky loans to people who, unfortunately, are losing their jobs quickly… Without jobs, these people won’t be able to pay the bank back… The bank management is using accounting tricks to… Read more »

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realpaul

NO -LYMPICS:

Greed is ubiquitous. However the game has changed and the commercials are 'getting it' faster than the retail crowd. The extended nature of the cycle due to government intervention lulled even the smartest people into the vacumn of 'a new paradim'. Look at Warren Buffet for example who stared the cycle down until even he broke down and started drinking the bathwater only to get burned along with the rest of us.

"Fool me once, shame on you, fool me twice , shame on me.."

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NO -LYMPICS

Balzac mall project more than 80% leased, developer says

http://www.calgaryherald.com/life/Balzac+mall+pro…

Despite the current economic downturn, the massive CrossIron Mills shopping centre at Balzac is more than 80 per cent leased, with commitments from 15 of 17 anchor tenants, and scheduled to open on time in August this year.

==========

Well….this could get interesting.

Opening a new mall in the midst of a recession.

Even if it succeeds, it will likely set in motion the demise of other businesses, as it appears there simply isn't enough business to go around.

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oneangryslav

Anonymous: I agree. It sounds like a nice anecdote, but it's missing, what do you call it…veracity.

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other ted

back in calgary I noticed the bow construction has made a lot of progess in this last three weeks. For the last year it was going very slowly almost stalled at one point. Now they are making good progress. It left me wondering how they are going to fill that monstrous building if it ends up being as big as originally planned. I think we are going to see a big glut in Calgary commercial space if we already are not seeing this right now.

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No Longer Looking

From Chipman's site:

Híppos Purrós { 08.18.09 at 11:29 am }

Meanwhile – back in Bill Gates country – today’s most interesting piece, courtesy the NYT… (a 4 min video)

http://tinyurl.com/l4e7cj

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rubberduckie

100 euro in Receivables on your balance sheet — that's an asset, unless/until it goes bad.

So the butcher/etc, were not in debt.

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Anonymous

NO -LYMPICS: If you and Garth don't see the obvious in that story (everyone had 100 euro credit and 100 euro debt) then it's time to read a few economic books!

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NO -LYMPICS

Cracked Houses: What the Boom Built http://online.wsj.com/article/SB10001424052970203… At the height of the boom in 2005, more than two million houses were built in the U.S., according to the National Association of Home Builders, a trade group. Criterium Engineers, a national building-inspection firm, estimates that 17% of newly constructed houses built in 2006 had at least two significant defects, up from 15% in 2003. ======== In April 2008, John D. Reynen, co-owner of the firm, filed for personal bankruptcy protection, saying he owed creditors nearly $1 billion. Months later, his partner, Christo Bardis, also filed for personal bankruptcy. The partners had personally guaranteed hundreds of millions in bank loans to buy thousands of acres of land for development from Bakersfield, Calif., to Reno, Nev. None of the business entities of Reynen & Bardis is bankrupt, says a spokeswoman. Even Rancho Murieta… Read more »

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Meat Robot

Pope, I've concluded that I know nothing about what the future value of real estate will be. I've been wrong way more than I've been right. I'm still not buying a damn thing though. I wish I did know the answer to your question. If I did, I'd be out there going either long or short on something.

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Thanks Dosh,Time.

Suncore energy an Alberta based oil company's performance is UP,Potash corporation of saska's performance is up,Rimm Ontario is up,Mosiac is up,Real estate listings in Vancouver are down and Prices are up.

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cashisking

Forgot to mention that it would be a great new thread once we finish the commercial RE discussion.

thx again

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cashisking

Pope

I don't know how to post but if you look at my comment 129 on Friday free for all it's excellent reading … WSJ report

P.S. commercial RE is all about CF and leverage … the unwind is just a LOT slower for assets like commercial RE b/c of factors like leases and illiquidity.

Thanks for all your work

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NO -LYMPICS

From Garth's blog: This is so true. It is the month of August, on the shores of the Black Sea . It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one. The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The Butcher takes the 100 Euro note, and runs to pay his debt to the pig farmer. The pig farmer takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes… Read more »

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NO -LYMPICS

realpaul:

Are you saying that commercial sector did its due diligence and simply had bad luck ?

It seems they got caught up in the same fiscal euphoria as the residential market. The residential market and its developers , even if it is being subsidized by higher powers with low interest rates is still taking a risk there are enough greater fools.

Why would their lenders treat the commercial sector differently ? It wouldn't be consistent with the view the economy is booming if they did. There is lots of commercial space sitting vacant and morseo in the newest developments. How could a bank lend to a commercial developer when the final product sits empty for months ?

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Anonymous

but but the recession is OVER!
http://www.marketwatch.com/story/recovery-begins-…

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rubberduckie

I can understand homeowners putting some intangible mysterious "value" on home ownership. Kids in the yard, etc. But I'm surprised commercial real estate has gotten so out of touch with fundamentals.

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realpaul

BTW Garths comment today is right on the money.

http://www.greaterfool.ca/

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realpaul

The gap is very wide between the incredulous commercial 'smart money ' guys and the slathering 'dumb money' crowd that drives the residential market. Professionally it is impossible to avoid the obvious conclusions that all is not good in real estate land because the decision making process is based on facts and not hype. The residential crowd however is all hype no fundamentals and hence the antipodal opinions on investment. Fundamentally, what is happening in the residential market should not be happening but is because of irrresponsible lending practices and an unconsionable media. Business doesn't operate that way, the commercials have to think about the consequences of their actions, they are playing with real money. Commercial real estate is based on expansion and profitability. What we are seeing with the implosion of the commercial industry is the very dark reality… Read more »

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