Pony Rides and the Great Real Estate Recession

The forecast continues to look bleak for real estate development of any kind, but particularly the commercial real estate markets, which appear headed for a financial tsunami. The numbers are large enough to cast a shadow over every facet of a recovery, even when divided by two. Somewhere in this pile is a pony, i.e. opportunities for investment and employment, assuming you know where to look. (Check out our prior posts on the FDIC/RAC's, for one.) The point: real estate projects (distressed and otherwise), will still need to be analyzed, managed, leased, sold, finished, marketed, etc. provided you connect with the right buyers and sellers. Here's the state of the union and best guesses for what's coming. In coming weeks, we'll talk about how to ride the pony.

• $38 billion – the remnants from failed banks that the FDIC is trying sell, ranging from virtually worthless mortgage backed securities to office decorations such as plastic Christmas trees.
• $1.4 trillion – the total original value of commercial real estate loans due to reset between 2010 and 2014, nearly half of which are underwater, i.e. the borrower owes more than the underlying property is worth. (Congressional Oversight Panel Report
• 40% - the decline in commercial property values since 2007.
• $280 billion – the additional loan losses that will need to be absorbed based on extrapolating the last two points.
• 94% - the portion of failed banks (since 2008) that had real estate loans as their largest category of delinquent debt. Construction loans accounted for 23% of the total. (SNL Financial)
• 35% - portion of which real estate loans comprise the total loan portfolio of most banks.
• 95% - portion of real estate loans comprising the total loan portfolio of Imperial Capital Bank in La Jolla, CA.
• 33% - amount of total U.S. deposits held by Bank of America, JP Morgan Chase and Wells Fargo following consolidations and acquisitions, up from 21% in 2006. (SNL Financial)
• 280 – the number of bank failures since 9/25/2008.
• 829 – the number of U.S. banks currently on the FDIC problem watch list. (Standard & Poor).
• 2932 – potential number of bank failures over the next decade (Keefe, Bruyette & Woods.)