More Toxic Debt to Come out of the US?

[Commercial Dan]

Don't bank on things being rosy just yet, there is more to come out of the US in 2010 so don't be 100% sure about higher interest rates just yet.

The banking sector here is not lending at all, how can our economy grow if this is the case?

Rates could remain lower for longer than we think!

I agree with Hugh Hendry, investment legend.

http://www.youtube.com/watch?v=OVAoZ5g7iF8

[Perry]

Make a mental note and
have a look at this article.
(On PT)

[muppet]

And this article as well.

Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash (Update3)



By John Gittelsohn and Thomas R. Keene


Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.
Making Lists
Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=aoRYl03Rw1_g&pos=10

[Commercial Dan]

That is a real worry, Wilbur Ross is a very astute man....hold on tight!

[Davo36]

Yes but CD, that is America, not NZ. Residential house prices there went down a lot and are still in the doldrums. We had a slight residential blip.

Why should a US commercial property implosion worry us?

[Commercial Dan]

Yes but CD, that is America, not NZ. Residential house prices there went down a lot and are still in the doldrums. We had a slight residential blip.

Why should a US commercial property implosion worry us?

Credit is a worry, if people think the banks are tight now, wait till something else happens...

[Davo36]

Credit schmedit. The banks over this way only seem to make money one way - lend it on residential property.

80% residential, 10% farms, 10% commercial property. And then some business lending, but they don't like that. They like the bricks and mortar thanks very much.

And so if they stop lending, they stop making the massive profits they've been making for some years now. They don't want to do that in a hurry. How's a bank CEO to get mega rich quickly? Not to mention the shareholders. How are all the minions to earn their bonuses? It would take WW3 or a country-wide-levelling earthquake to stop them lending on residential property in NZ.

They stopped a bit for a brief while when Lehman fell over but are right back at it, with slightly tougher criteria - but this is still pretty lax when compared to days gone by.

[Bluekiwi]

The property market in NZ is certainly poised on a knife edge, it has made a huge lunge forward in the last 2 or 3 months with investors and home buyers really entering the market and having a huge choice of great deals.

That had dried up and there was a distinct feeling that property was in short supply, with such demand a huge chunk of property went to auctions versus price setting.

Also the mortgage auction arena is a bit of a feeding frenzy at the moment and better deals are probably being negotiated with vendors I believe.

The spring listings havent really come on with many people probably still thinking its a bad time to sell, and caution over the economic recovery probably holding people back from selling, and also the flood of people going to Australia turning to a dribble, has dryed up new listings I believe.

There are 2 ways it can go now.

1. Nett Immigration stalls as the Ausie econ. lures people away from NZ, unemployment creeps up and stays around 7%, interest rates continue rising, US comm. property sets off another credit crunch:

And the property market takes another dive.

2. Immigration stays where it is, short term rates stay low for a while and we all stick to them like glue, building consents stay low as developers cant get finance, the great communal get together of 2009 comes to an end as people realise most of them kept their jobs, and their is a real shortage of property.

Unfortunately there would then be a very real possibility of another mini property bubble.