Wednesday, February 29, 2012

extend and pretend coming to an end...,



Washingtonsblog | You have to admire the resourcefulness of the vested interests in disguising disaster and pretending that time will alleviate the consequences of their insatiable greed, blatant criminality and foolish risk taking. Extending bad loans and pretending they will be repaid does not create the cash flow necessary to actually pay the interest and principal on the debt. The chart below reveals the truth of what happened between 2005 and 2008 in the commercial real estate market. There was an epic feeding frenzy of overbuilding shopping centers, malls, office space, industrial space and apartments. During the sane 1980’s and 1990’s, commercial real estate loan issuance stayed consistently in the $500 billion to $700 billion range. The internet boom led to a surge to $1.1 trillion in 2000, with the resultant pullback to $900 billion by 2004. But thanks to easy Al and helicopter Ben, the bubble was re-inflated with easy money and zero regulatory oversight. Commercial real estate loan issuance skyrocketed to $1.6 trillion per year by 2008. Bankers sure have a knack for doing the exact opposite of what they should be doing at the exact wrong time. They doled out a couple trillion of loans to delusional developers at peak prices just prior to a historic financial cataclysm.

The difference between bad retail mortgage loans and bad commercial loans is about 25 years. Commercial real estate loans usually have five to seven year maturities. This meant that an avalanche of loans began maturing in 2010 and will not peak until 2013. With $1.2 trillion of loans coming due between 2010 and 2013, disaster for the Wall Street Too Big To Fail banks awaited if the properties were valued honestly. A perfect storm of declining property values and plunging cash flows for developers should have resulted in enormous losses for Wall Street banks and their shareholders, resulting in executives losing not only their obscene bonuses but even their jobs. Imagine the horror for the .01%.

The fact is that commercial property prices are currently 42% below the 2007 – 2008 peak. The slight increase in the national index is solely due to strong demand for apartments, as millions of Americans have been kicked out of their homes by Wall Street bankers using fraudulent loan documentation to foreclose on them. The national index has recently resumed its fall. Industrial and retail properties are leading the descent in prices according to Moodys. The master plan of extend and pretend was implemented in 2009 and three years later commercial real estate prices are 10% lower, after the official end of the recession.

Part one of the “extend and pretend” plan has failed. Part two anticipated escalating developer cash flows as the economy recuperated, Americans resumed spending like drunken sailors and retailers began to rake in profits at record levels again. Reality has interfered with their desperate last ditch gamble. Office vacancies remain at 17.3%, close to 20 year highs, as 12.3 million square feet of new space came to market in 2011. Vacancies are higher today than they were at the end of the recession in December 2009. The recovery in cash flow has failed to materialize for commercial developers. Strip mall vacancies at 11% remain stuck at 20 year highs. Regional mall vacancies at 9.2% linger near all-time highs. Vacancies remain elevated, with no sign of decreasing. Despite these figures, an additional 4.9 million square feet of new retail space was opened in 2011. The folly of this continued expansion will be revealed as bricks and mortar retailers are forced to close thousands of stores in the next five years.

It is clear the plan put into place three years ago has failed. Extending and pretending doesn’t service the debt. Only cash flow can service debt.

4 comments:

Anonymous said...

Great blog here! Also your website lots up fast! What host are you the use of?

Can I get your associate hyperlink in your host?
I wish my website loaded up as quickly as yours lol

Also visit my web page cccam dreambox 800 hd

Anonymous said...

Howdy! This post could not be written much better! Looking through this post
reminds me of my previous roommate! He continually kept preaching
about this. I will forward this post to him. Pretty sure he's going to have a great read. I appreciate you for sharing!

Also visit my web-site ... diets that work for women

Anonymous said...

The Stage [url=http://rayban.aikotoba.jp/#455228]レイバン サングラス[/url]
Scenic Superintendence of High quality Supervision, Inspection and Quarantine announced yesterday that the 2012 lay [url=http://oakley.amigasa.jp/#455226]オークリー 激安[/url]
optical linkage checks showed, sunglasses, eyeglass frames two types of products dividing line bite pass status of 90.9% and 91.5%, respectively. Sunglasses products complicated in the major [url=http://oakley.amigasa.jp/#455222]オークリー サングラス[/url]
characteristic problems are shining transportation correspondence, logos and other projects failed; conferring frames complicated the most important [url=http://sunglassesnew.aikotoba.jp/#455235]人気サングラス[/url]
distinction problems are inter-chip stiffness, au courant with lens dimensions of the whack method, [url=http://sunglasses.amigasa.jp/#455214]サングラス 通販[/url]
anti-sweat corrosion realization failed.The male, a whole of 261 glasses manufacturers and 507 in Beijing, Tianjin, Shanghai and other places eyewear distribution debit carried effectively [url=http://oakley.amigasa.jp/#455223]オークリー ゴルフ[/url]
smudge checks. Involving 237 direction (including commission processing) movie [url=http://oakley.amigasa.jp/#455223]オークリー ゴルフ[/url]
of 351 batches of sunglasses and 389 forging (including the commission processing) staging of 551 batches of show off frames products. [url=http://oakley.amigasa.jp/#455224]http://oakley.amigasa.jp/[/url]
Locale checks start that a ineligible of 32 batches of substandard sunglasses, defraud frames a sum up up to of 47 batches of substandard.
[url=http://sunglassesnew.aikotoba.jp/#455234]サングラス ブランド[/url]

Anonymous said...

Keep on writing, great job!

Feel free to surf to my weblog ... Convection air oven