David Westerfield

Theology, Culture, Technology, Reviews, and Other Commentary



Commercial Real Estate Watch

“In order to sort through the disaster that is Wells Fargo’s commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.”

“The CRE alarmists may yet be proven right, but the delayed reckoning due to CDS [credit default swap’s] accounting means it may take a while for these shoes to start dropping.”

“The next wave of the credit crisis is about to hit — a collapse in com mercial real estate and potential explosion of bank failures. With its resources tapped out by the first wave, what should Washington do?

“Over the last year, the Federal Reserve doubled the size of its balance sheet, and took unprecedented action in monetizing government debt and extending credit to financial institutions. Now it must head off inflation and extricate itself from $5 trillion-plus in credit exposure from various bailouts. The Treasury, meanwhile, is issuing debt at the fastest pace in peacetime history.

“Now comes the next crisis. The same factors that caused the residential bubble — easy credit, lax lending standards and booming mortgage-backed-securities underwriting — also drove commercial real-estate overvaluation. But the commercial market lags the residential one by about a year, so this bubble is still popping.”

1 Comment

  1. We offer a confidential review of your leased and owned commercial property portfolio.

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