Commercial Property Herald

On The Other Hand

What will the effect of the recent Wall Street tumble have on our economy? Should it have any effect at all?

These are two of the questions that I have been asking myself since the 2008 crash and within the last few days.

A recent article in the Sacramento Bee, Wall Street aftershocks felt in California's economy, got me thinking again.  Yes, Mike, thinking again is a good thing, particularly at our age.

Wall Street, generally overreacts and instantly.  There is no time laps or lag here.  As the president speaks, the market either goes up or down before he walks off the podium.  Yes, I agree it is often a heard mentality and it is about as reliable a guage of success or failure of a policy as a bet in Las Vegas.  I find the market gyrations interesting and sometimes disconcerting, but not something to get elated or depressed about.

On the other hand, if there were some underlying facts that I should consider that may have effected the market, I will.  Over the last week or so, it is clear that the debt ceiling debate, our governments falure to stop playing politics and deal with the problem and now the downgrading of the US debt has had considerable effect on Wall Street.

On the otherhand, we all should have seen these problems coming on, particularly the downgrading of the US debt.

On the other hand, there are those who would argue that the downgrading of the US debt by S & P is nothing more than an opinion of the wealthy few who think they know what they are talking about.

On the other hand, S & P knew what it was doing when it rated all that CMBS debt and housing debt, didn't they?

On the other hand, maybe S & P should have acted sooner because our economy may not be doing as well as our politicians have been telling us, or at least it doesn't feel like it is doing as well.  Maybe there are some sound economic principles and markers behind the downgrade and the market should be reacting to these economic principales and markers.

On the other hand, maybe I just have no clue and have no idea what I am writing about.

On the other hand, maybe the stock market is right where it should be.

Is There Gold in Thar Hills?

I noticed this "ar" aticle  (and no Mike, I did msipell this intentionally), in the Orange County Register about the expansion of Gold Max, a growing retail chain in the business of buying and selling gold.  It seems like a rapidly expanding business with very strong short term prospects, with unemployment and gold as high as they are and the economy as low as it is.

I suspect gold will continue at its lofty hieghts for some time while the economy continues to struggle and people need to dispose of the shrinking family jewels, (no I don't do divorce law) for cash and those with cash are looking for places to put it with, again, an unstable stock market.

But how long will the gold boom last and how long will it be before Gold Max starts seeking additional rent concessions partly caused by their rapid expansion.  I suspect that in about 3-5 years, this business will start having trouble as the economy and employment improve and the gold business start diminishing.  In the meantime, you might as well go for the ride, since it looks like it will be a fun one for the gold people.  And that is ok for today's landlords since by the time that the Gold Max starts having trouble, there will be other tenants to replace them.

 

How will Medicare Cuts to Long Term Nursing Facilities Affect Commercial Real Estate

As a follow up to my most recent conversations on how the debt ceiling crisis will affect commercial real estate, Reuters reports that the federal government just announced deep cuts on medicare & medicaid reimbursements to skilled nursing facilities.

So in answer to my previous question, yes, this is going to hit commercial real estate, right square in our real estate pockets and seriously puts into question my soothsaying credibility since I have been so positive on investing in skilled nursing facilities and properties as a long term investment.
Of more importance is, " How will these cuts affect the long term care of the elderly and the ability of their children to care for them?"

I think the short answer is:

• Long Term Medical Care Facilities Revenue will drop;
• There will be less investment in Long Term Medical Care Facilities;
• Less Facilities will be available to take care of our elderly and Baby Boomers who are rapidly becoming elderly, (myself included); and/or
• The quality of care will devolve; and/or
• A greater cost of care will assumed by our children; or
• Soylent Green

Real Estate Fraudster of the Day!!! A Report on another Scam Artist

The NBC Bay Area Blog reports that another scam artist has pled guilty to bilking investors.  As the prosecutor stated, this is not an issue caused by dropping real estate values, the defendant,Gary Lynn Mountain was aware that the building that he was getting investors for, was beyond repair and, just so happens, he forgot to tell the investors that the buildng was slated to be demolished.  Guess where the money went?  Costa Rica, where he was arrested, and its all gone according to Mountain.  He is 61 years old.  What was he thinking?

Retail Market Sees Little Change in 2nd Quarter. Where is it Going?

OK, I will admit I am a bit stumped.  As I had predicted almost 3 1/2 years ago when I started evicted furniture stores, mortgage companies and realtors from retail and office, the commercial real estate market was going to take a dive.  While it took a dive, it didn't dive as much as I thought because there were still plenty of mom & pops out there who still wanted to open their own retail business and plenty of foreign money.  While vacancies increased, prices didn't go down as fast and as sharply as I thought, although the credit worthiness of the tenants and the landlord's due diligence became almost non-existent.  Landlord's due diligence is a post for another day for me to write about.

Then it seemed that while the foreclosures increased and the prices of the retail properties came down, the money waiting in the wings came back in, proping up the market and the retail markets.

I have seen a over the last year, an increase in sales activity while the bottom dwellers get back into the market, which may also cause a further reduction in rents but I am not sure I can clearly see where the market is going.  

It seems to me that, as Roger Showley of the San Diego Union Tribune, writes,  the market is not only flat, but probably will remain somewhat flat for the foreseeable future, with some slight gains and dips over the next twelve months.  It just seems that there is just too much uncertainty in the market for anybody to jump back into the market with ferver, including foreign investors.

How will the Debt Ceiling Debate Effect Commercial Real Estate

With all the hullabaloo and politcal rangling over the issue of raising the United State's debt ceiling over the last few weeks, I have been contemplating how those in commercial real estate will be effected. On July 29th, Globe Street Reports that Goldman Sachs and Citigroup have pulled a 1.5 Billion CMBS offering this week., has partly answered my question.  Higher interest rates, less availability of money and perhaps a slow down of the recent uptick in the commercial sales that we have been seeing lately.  Over the next few posts, I will be setting out some of my thoughts and the thoughts of others on this issue.

Are Discount Retailers Making Good Lease Deals in Today's Market and What Will Happen When the Economy Improves?

When the recession/depression started a few years back, I predicted that there would be a significant increase in business for discount retailers and club stores such as Costco and 99 Cent Stores.  Really didn't take a genius to figure that out.  As many of us already know that over the last few years, Dollar Tree and 99 Cent Stores now have access to shopping centers that would not have considered them years earlier.  My question is, how long are these leases and what will happen when the economy improve?

For the discounters picking up leases in more desirable locations and centers in today's market, my assumption is that they are signing leases at a highly discounted lease rate and a long enough term to secure the location for the foreseable future, (10 years or more).  Certainly, as the retailer, I would be locking in today's rate for as long as I could and if the market changed such that the store no longer generated the desirable revenue, you could always turn it back to the landlord, or, if adequatly negotiated, sublease or assign it.  In today's market, it is a no-lose situation for these retailers.  It's a lot like doubling down when your dealt a 5 & 6 and the dealer is showing a 6!

Commercial Real Estate Radio becomes CRE Radio with Howard Kline

We have been building and expanding.  We have now opened on new web page, OK, its just a landing page right now, but you can get to the radio show from here.  Go to www.creradio.com, to listen to the radio show.  We have also changed the name to CRE Radio with Howard Kline

California Appeals Court Rules Oral Promises Are Binding

A recent California appeals court ruling found that an oral promise by a lender to modify a loan is enforceable, by the borrower.
California Appeals Court Rules Oral Promises Are Binding.

To an experienced lawyer, a recent court ruling in California finding that an oral promise to modify a loan can be enforceable even when the loan documents require a writing to modify the loan, is not new or surprising law and is nothing more than what we learned in law school.  What us lawyers would refer to as "Hornbook Law." We know this defense as "Promissory Estoppe and can be raised as a defense in almost any contract dispute, not just loans. The defense arises when one party reasonably relies upon, to their own prejudice or harm, the person making the promise may be bound by their oral promise. 

There are some difficulties in the defense, not the least of which is proving that the promise was actually made, that the promisee reasonably relied upon the promise and that the promise relied upon the promise to their prejudice.

Why Close the Bank, Just Bail it Out.

Carrie Bay writes in DS News Regulators Shut Down Four Banks, about the recent spate of closures by the FDIC of community banks including shutting down La Jolla Bank FSB. According to Carrie:

"The FDIC brokered a deal with OneWest Bank in Pasadena to take over La Jolla Bank’s $2.8 billion in deposits and reopen its ten branches. One West, which was formed to take over IndyMac Bank when it collapsed, also agreed to purchase “essentially all” of the La Jolla Bank’s $3.6 billion in assets, $3.3 billion of which the FDIC agreed to share losses on. The California bank’s failure is expected to cost the FDIC $882.3 million."

This deal follows on the heels of questions raised about the deal brokered by the FDIC when One West Bank took over Indy Mac Bank and One West Banks most recent profit disclosures.

All of this raises the question, what would happen if the FDIC didn't close the community banks holding the toxic loans and instead, simply shared the losses with the failing banks?  What if, in the case of La Jolla Bank, the FDIC just agreed to share the losses with the bank, expecting to lose $882.3 million?