Props to Economy Info on Twitter for providing this link.
Revolutionary Politics posted a great article explaining what is going on in the commercial real estate market.
That’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it. The government will intervene, trying desperately to delay the day of reckoning, and may even succeed. For a while. But make no mistake about it, that train is going off the tracks no matter what.
Every part of the sector – from multifamily apartment buildings to retail shopping centers, suburban office buildings, industrial facilities, and hotels – has accumulated a huge amount of defaulted or nonperforming paper. It’s an impossible, swaying structure that cannot long stand.
The logic is simple to understand. Consumers are either out of work or severely cutting back and retailers who overbuilt during the housing boom are now suffering. This Christmas season is going to be a bloodbath as retailers fail to make up what they have been losing all year. As I mentioned in my post Retailer Russian Roulette many of these retailers are failing and I think that this is the last Christmas season we will see many of them as they go bankrupt. I predicted at the beginning of the year that by 2010 the only retailer left standing will be Walmart. Once the aftermath of this Christmas season is complete, I think my my prediction will be correct.
Once the retailers fail, they will obviously stop paying rent to the mall owners and developers. When developers see their income dropping from reduced rents, they will find it difficult to pay the financing on their commercial loans. Once that happens, it will all come crashing down. The fraudster banks who floated these ridiculous loans will be the hardest hit.
Good luck to Bernanke, Obama, Geither and the rest of the bankster bailout squad with this one. Sooner or later it is time to pay the piper.
