15 February 2009

Round 2

"There are many more bank failures to come over the next couple of years, mostly because of losses related to Construction & Development (C&D) and Commercial Real Estate (CRE) loans..."

Many people that I speak with about the current economic crisis reject the idea that this contraction will get considerably worse due to a likely wave of defaults in commercial loans. I have a feeling that the default frenzy in home mortgages was just a glimpse of what is to transpire in commercial real estate markets.

I spoke with a colleague the other day about a property in Las Vegas that was appraised for over $6 million about two years ago. We just received a current appraisal and the value came in at under $2 million. A $4 million loss in just two years! And we're probably not even half-way through this contraction in terms of lost growth. So as businesses continue to fail and the number of new ventures to replace them declines, the demand for commercial real estate will fall through the floor in a market that is already arguably vastly over supplied.

Let the good times roll.

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