On Commercial Real Estate

Think for yourself - easier said than done here in the cave known as the third rock from the sun. If you have not read the Trial and Death of Socrates and are not familiar with "The Allegory of the Cave," the video below will give you a quick, nitty-gritty on the alternate reality/denial we all choose to live in. If you have, feel free to skip it.



Lessons from philosophy 101 slapped me in the face again yesterday while making the mistake of watching more than a minute of a major news network commentator at one time. They had a political analyst on that had put Americans through a series of tests which recorded their reactions to images including George Bush, Barack Obama, the Iraq War and other politically charged photos. It was a cave moment that reminded me that we are trained at a young age through popular culture to define ourselves socially and internally through our political alignment and grouping. Naturally, democrats were fiercely against George Bush and Iraq as Republicans were fiercely against Barack Obama and the bailout. The real tragedy was that there were no statistics that tracked those equally appalled by each set of images or linking both parties to the peril our country is currently in.

As someone who earns his daily bread in the commercial real estate market, I can say with full authority that the stories being printed are mere techne and shadows of the real problem which we have yet to look in the eye. There are tens of millions of square feet of income producing real estate (what it "is" on bank books) that was built to be investment grade (income producing)that are are virtually WORTHLESS - or in many cases WORTH LESS than nothing...they carry stiff environmental charges. The entire cities of Detroit and Cleveland fall into this category and this is not a joke. The Southwest is being taken back by the desert as well - for reference, look into the major casino failures in Las Vegas, ghost malls and stalled projects on the strip...2 years ago one of the most "prestigious" retail markets in the world featuring Ferrari and Lamborghini dealerships in the lobbies of hotels.

CRE Distressed Auctions Coming, 90%-Off Minimum Bids

Posted by Tyler Durden at 6:46 PM

And so reality, and realty, starts to catch up (with commercial real estate at least, if not with the market). Bloomberg reports that Sperry Van Ness and Guardian Real Estate Services LLC will conduct auctions on various commercial real estate properties in California, Idaho and other western states. Among the properties to be auctioned off include an apartment complex on the Wilshire corridor and land in Rancho Cucamonga (famous for nothing, except being host to America's biggest liquor store Liquorama). The kicker: minimum bids will be over 90% off of peak market values. So if you are a tenant in some crappy mall in the inland empire and are paying roughly this much to SPG or GGP, you may want to consider just buying for the same money you would pay for one year's rent. Oh, and Merrill - all those REIT rent calculations... feel free to throw them out of the window.

For all interested strip mall tenants for whom Brazilian waxing provided to be a bumper cash crop last year, you can get info on the auction here.

(and no, this is not a sponsored post - it is useful to see what this kind of toxic garbage goes for these days)


This guy has the credibility of the people from the "Cash 4 Gold" commercials.


U.S. called new emerging market for real estate

NEW YORK (Reuters) - Brazil, Russia, India and China move over. There's another emerging market for commercial real estate opportunities.

"Now that the meltdown has happened, the new emerging market is the United States," Tom Shapiro, president of real estate investment firm GoldenTree InSite Partners, said on Tuesday at the Reuters Global Real Estate Summit in New York.

The U.S. commercial real estate crash, in which prices are down more than 20 percent and are expected to fall 40 percent to 50 percent, has created a landscape of what is expected to be a land of vast opportunity for those with cash.

"I think there's going to be the best opportunity to make money in the last 20 years in real estate in the U.S.," Shapiro said.

GoldenTree InSite stopped investing in U.S. real estate in early 2006 and has focused most of its attention and cash on Brazil, where it has invested in residential and office properties.

But with about a $1 billion to use, it is poised to return to the U.S. market and take advantage of the right projects that need or will need money when they come up short.

"We are just at the point now where we are seeing some very interesting entry points on certain transactions," he said.

New York-based GoldenTree InSite is an opportunistic real estate company that invests funds raised from pension funds and other institutional investors.

Shapiro said his firm not only considers location but places more weight on the merits of an individual project.

"We're more about finding the right project in the right location," he said. "We're not looking for shotgun shots. We're looking for rifle shots."

Still, Shapiro said his firm likes big cities, such as Los Angeles and New York where downtrodden commercial real estate markets tend to rebound strong.

"San Francisco right now is a pretty interesting place to think about because San Francisco is a very diversified economy," he said.

He also mentioned residential land and hotels are of note because they are bottoming out.

"There's a lot of projects, whether it be development or operating properties, or properties that need to be renovated that were done with the best of intentions but relied on increasing fundamentals, rents working and not having construction overruns," Shapiro said.

GoldenTree InSite has not yet committed any funds to a new U.S. investment. It is not only evaluating what project to invest in, but how to enter the deal -- via equity, mezzanine financing or by buying distressed senior mortgages. Depending on the position of the financing, investment could be bought at 20 cents or 30 cents on the dollar.

For U.S. investing, GoldenTree InSite is likely to add leverage to its existing capital but will use it carefully, Shapiro said.