BLOG VIEW: Burned Out On Bailouts

Written by Jessica Lillian
on August 06, 2009 No Comments
Categories : Blog View

ome faintly positive signs emerging for the U.S. economy, the commercial real estate sector remains in trouble, with industry sentiment still negative and alarming statistics on loan delinquency popping up with increasing frequency. For instance, Realpoint recently reported that the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) increased by $9.87 billion, up to a trailing 12-month high of $28.65 billion. As you [u][link=http://www.mortgageorb.com/e107_plugins/content/content.php?content.3984]may have read on MortgageOrb last week[/link][/u], this CMBS delinquency total represents a staggering 585% spike over last year's figure. Finding similarly strong indicators of distress in industry news is not difficult. Not surprisingly, the Real Estate Roundtable (RER) characterized the commercial real estate sector as ‘extremely stressed’ in [u][link=http://www.rer.org/site/c.hsJRKYPFJrH/b.5355041/k.7787/Real_Estate_Roundtable_Sentiment_Index__Q3_2009.htm]a recent report[/link][/u] that weighed opinions from 120 industry executives. A full 93% reported that asset values were lower than at this time last year, and 82% believe values will deteriorate further or remain the same in the next 12 months. Moreover, 71% observed that credit availability is now worse than it was a year ago, and 41% think the credit crunch is ‘much worse’ now. ‘The vast challenges facing commercial real estate today are far from over,’ Jeffrey DeBoer, RER president and CEO, said in the report. ‘Continued comprehensive policy action is called for to bring liquidity back to the market and avoid a cascade of negative repercussions for the economy.’ Unfortunately, this call for ‘comprehensive policy action’ – which, to many observers, is read as a plea for a bailout – could not arrive at a worse time. Following a series of unprecedented actions taken by the federal government over the past several months intended to bolster the U.S. economy, bailout backlash in the country is rampant. Although policy action to address CRE's woes would not call for direct approval from the American public, of course, elected officials' votes are designed – in theory, at least – to reflect citizen opinion, and such widespread opposition to government intervention in CRE is worth noting. ‘By definition, you have to be wealthy to invest in commercial real estate,’ wrote Petrino DiLeo [u][link=http://socialistworker.org/2009/08/05/other-real-estate-bubble]in an analysis[/link][/u] on SocialistWorker.org. ‘But the assumption in corporate America now is that no one has to take a loss on their investments, because the government will step in with a handout. That's why a group as odious as [commercial] real estate developers feels emboldened to ask for help.’ DiLeo criticized the discussion during [u][link=http://jec.senate.gov/index.cfm?FuseAction=Hearings.HearingsCalendar&ContentRecord_id=51399723-5056-8059-76da-8870d70efb74]last month's Congress Joint Economic Committee hearing[/link][/u], which, according to the committee, was intended to ‘examine the growing financing problems faced in the commercial real estate market and potential solutions to the credit crisis in the sector.’ During the committee hearing, RER's DeBoer noted in his testimony that an estimated 9 million jobs are supported by real estate – and cited the numerous links between the health of CRE and the country's economic recovery. ‘Defaults and foreclosures are expected to increase due to the paralyzed credit markets. Together, the resulting value declines and debt dislocations threaten to undermine any nascent economic stabilization some believe is now underway,’ he stated, according to published testimony. DiLeo, on the other hand, called the hearing ‘farcical,’ stating that it lacked any discussion of whether a bailout was truly needed or whether the industry played a role in creating its own troubles. ‘These looming handouts to commercial property owners can't be justified as helping the economy as a whole – only the wealthy few who can use them to avoid investment losses,’ he wrote. Admittedly, DiLeo's forum – Socialist Worker, an online newspaper published by the International Socialist Organization – may not represent the U.S.' most mainstream opinions. The interesting twist here, however, is that claims of socialism have – accurately or inaccurately – become a major rallying cry among opponents of the federal government's previous interventions. You have undoubtedly read the newspaper editorials and viewed the television interviews. MortgageOrb readers were likewise quick to decry handouts when they responded to our [u][link=http://www.mortgageorb.com/e107_plugins/content/content_lt.php?content.4017]Blog View published earlier this week[/link][/u]. ‘What is it with giving all these handouts?’ wrote one commenter, in response to discussion of the Ohio Housing Finance Agency's program to assist college graduates in obtaining mortgages. ‘Everyone's answer to today's problems is socialism… good luck!’ he said. Now, a socialist group is arguing against a ‘socialist’ bailout. What do you think? – [b]Jessica Lillian[/b], [i]Commercial Mortgage Insigh

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