Starting to see stories of commercial real estate weakness everywhere now... imagine that. Made
Fast Money even... shocker. To be fair, Karen
Finerman has been on this case for a while, unlike most. The normal crew is too busy wasting time shouting at each other - the show has gotten old when all it is nowadays is seeing who can yell louder,
Macke or
Najarian. Yawn.
Back to commercial real estate, it appears people are
finally seeing the light we've been preaching for a very long time. (
Dec 2007: Credit Downturn Hits Malls)
Since we cannot short individual names we've been using
Ultrashort Real Estate (SRS) (
Nov 12: REITs Continue to be a Gold Mine on the Short Side) One great thing for individual investors is these
ETFs on the short side were not around in the last bear (2000-2002) so they are an easy way to be "long" and something a person can use even in retirement accounts. But the volatility is
monstrous. It will soon be time to let go much of this position and then rebuy on the inevitable "the worst is behind us bounce" - don't want to get overly greedy because this is something that could reverse 75 points in a matter of 1 to 2 days. In fact it did just a few weeks ago.
- The prices of bonds and stocks with exposure to commercial real estate plunged on Wednesday on fears the weakening U.S. economy could lead to a wave of defaults on loans for office buildings, retail stores, and hotels.
- The value of commercial mortgage-backed securities (CMBS) has tumbled this year amid fears that poor underwriting standards and slower economic growth will boost defaults from historically low rates.
- Yield spreads on the CMBX-5 index of "AAA" CMBS surged more than 100 basis points for a second day to 714 basis points over the benchmark of interest rate swaps, dealers said. Spreads, which measure perceptions of risk, on the derivative index are up from 200 basis points in October. Top-quality CMBS spreads are near 1,100 basis points, for junk bond-like yields of 15 percent or higher. Those spreads were around only 30 basis points before the global credit crisis began last year.
- Selling of CMBS accelerated last week after U.S. Treasury Secretary Henry Paulson said a $700 billion rescue plan would be geared toward providing banks with fresh capital, rather than used as a fund to take illiquid mortgage assets -- such as CMBS -- off bank balance sheets. Paulson reiterated that stance this week.
- "The mall operators are really, really in trouble," said Kevin Quinn, a managing director of equity trading at Stanford Group Company, mentioning Vornado Realty Trust VNO.N as a key player. "There aren't even signs on the empty stores in the malls. They've been empty for a while, barren, tumbleweeds blowing through." (sounds familiar to a blog I visit daily)
- "I don't expect any improvement," said Chris Sullivan, chief investment officer at the United Nations Federal Credit Union in New York.
