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The Roundup April 22

That bomb you hear ticking is commercial real estate.

The credit crunch has thus far focused on the residential mortgage mess. But with $1.3 trillion in loans to shopping centers and other commercial properties coming due between now and 2013, another time bomb is ticking. In a report scheduled for release on Wednesday, Deutsche Bank estimates that at least half the loans — and two-thirds of those packaged and resold as securities — will not qualify for refinancing. As a result, many borrowers will likely default, leading to losses on securitized mortgages of $50 billion or more and losses of at least $200 billion on commercial real estate loans overall, according to Deutsche analyst Richard Parkus

(“The Looming Crisis in Commercial Real Estate,” Time April 22) General Growth Properties was the first cow to enter the abbatoir — there’s a whole line of former commercial real estate cash cows lined up at the abbatoir doors. But, don’t cry for them, Argentina, the incredibly stupid financing undergirding the commercial real estate market (I was criticizing this in a blog way back in 2006) means spectacular opportunities for start-ups. By year’s end, Deutsche Bank expects American retail spaces to be almost 14% vacant and about 17% of office space empty and losing money. This means that you can get tough — real tough — with owners. Don’t just get low prices, get them locked in for five or ten years. Lock in fixed rent increases for ten, twenty, thirty years. In other words, now’s the time to make a “dentist’s deal.” Don’t know what that is? A guy sits down in the dentist’s chair and as the dentist approaches, he grabs the dentist by the family jewels and squeezes. “Here’s the deal,” he says to the dentist, “you don’t hurt me and I won’t hurt you.” This is the year you have commercial property owners by the . . . now, go make a deal.


As California goes out of business, we’re rapidly becoming the homeless state.

A record number of California homeowners failed to make their loan payments in the first three months of 2009, even as the number of homes lost to foreclosure continued to drop, according to figures released today.

(“Record number of Californians miss mortgage payments,” Los Angeles Times, April 22) I live in a semi-wealthy area of Los Angeles where no-one lives on less than five acres. Two of my neighbors, a rap producer (who “committed suicide” in LA Sheriff’s custody in October) and an HVAC exec simply stopped paying their mortgages months and months ago and still have yet to be foreclosed (though they’ve been moved out). A short walkabout along the sidewalks of San Marino — where the Huntington Library is located — reveals dozens of for sale signs, something I’ve never seen in over a decade of hanging out in Pasadena and San Marino. You see, when a house comes up for sale in San Marino, it gets purchased long before there’s any need to even announce its availability, let alone put up a lawn sign. These are truly times, friends, truly odd times.

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