Monday, August 16, 2010

This Could Bring Down The Wall Of Bricks (Financially Speaking)

Here’s another potential catalyst for the market’s next leg down: Call it the commercial real estate shakedown of 2010. This is something our income-investing staff at Sound Of Cannons has been eyeing for months -- as a result of the $1.4 trillion in CRE loans maturing in the next three years.
Of these, an astronomical amount are underwater. A large portion are in ‘nonaccrual status’ -- which just means the loans are past delinquency.”
“Even more are set in ‘extend and pretend’ mode. Meaning lenders know there's no market for these properties. So they are just letting at-risk borrowers continue to make whatever payments they can.”
“The commercial real estate lobby isn't going to miss an opportunity to beg for money. A colleague forwarded me a letter this lobby sent House representatives asking them to support Rep. Shelley Berkley's Community Recovery and Enhancement Act.” Get it? The CRE Act? Wow, they’re clever.
“The bill itself -- no doubt written by the very same lobbyists -- would give investors a 50% tax cut on investments on commercial real estate debt. But this will only delay the problems. And it won't even do that great of a job doing that.
“We can't imagine the private sector picking up all the troubled loans for just a 50% tax cut. Many of these properties are in such bad shape, they resemble the ‘toxic loans’ that came out of the residential market in 2007-08.”
The bill sits in committee. But “depending on where it goes from here, we could be looking at a catalyst for the second dip in the market.”

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