tag:blogger.com,1999:blog-6242542220345627649.post2170558610771700444..comments2011-02-23T21:42:34.718-05:00Comments on The Matador Group: A Few Funds To Play Rising Commercial Real Estate PricesUnknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-6242542220345627649.post-42596153657831870232010-08-05T00:00:13.783-04:002010-08-05T00:00:13.783-04:00I will take the other side of that trade. I belie...I will take the other side of that trade. I believe that the CMBS market will be dry for a long time, and I would expect prices to continue to decline over the next 2-3 years. A couple things that worry me about the CMBS market, first would be that the market has an artificial floor holding it out - the banks that are holding the CMBS on their books do NOT have to mark-to-market these securities. The problem? There is no market. It is hard to have a market improve until the inventory is flushed. I think the fact that Goldman and Citi are selling so much CMBS is a sign of future problems on the horizon. Citi of all banks got into so much trouble for not foreseeing the housing crisis, and Goldman... well it is Goldman. Second, there is a shift in the way consumers shop - from bricks and mortar to e-commerce. Recently barnes and noble put it self up for sale, why? well with a debt to equity of 50% and amazon.com eating away their market share, there is no point to be in that business any longer. During amazon.com's most recent earnings call, they said they have for the first time sold more e-books than traditional books. That is telling for barnes and nobles future, and the reason why they put themselves up for sale. Imagine all those stores empty? That will definitely not help the fragile market. Plus most of the Linen and Things outlets that went out of business a few years are still vacant. There is simply no demand for commercial real estate. Also - electronic retailers and office supply stores are next... Walmart is eating into Best Buy's and Staples' market share, and the lower players like Office Depot, Office Max, PC Richards, and 6th Ave will run into trouble over the next few years and will be forced to close stores - increasing the inventory further. Third, relating to the second point... there is just so much damn inventory that needs to be filled. Commercial real estate has a lot of fixed costs that have to be paid whether there are tenants or not. Fourth, a lot of these investment trusts and holding companies of commercial real estate have had enough cash to service debt, rolling over debt, or subsidizing properties. All of these solutions are unsustainable. Yes rates are extremely low right now, and they may be able to roll over more debt right now, but if vacancies continue to increase it will be hard for flagship properties to subsidize low income properties. And you may say, they can sell the property. Forget that - no one is buying. They will likely default on the payments to that property. The feed through effect? Write-offs to banks... MORE write offs. I give props to GS and C for selling this crap before it is too late, and the lack of mark to market accounting lets them unload without much harm to their capital base.<br /><br />My thoughts...<br /><br />Joe MeroniJoehttps://www.blogger.com/profile/13961565032675485662noreply@blogger.com