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yellerkat

Meanwhile, In The Real World

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No desperate buying or sentiment in Commercial Real Estate!

Could be worse if you are a foreign investor..... The British Pound is 20 percent off against all other major currencies over the past 12-18 months.....
BNP Paribas analysts are worried about the health of the UK’s commercial real estate sector. In a note released on Friday, they warned that a “combination of rising vacancy rates, falling rentals and extraordinarily difficult financing conditions will almost certainly drive UK CRE losses higher.â€

Analysts Vivek Tawadey and Olivia Frieser contend that CRE is the “next leg of the credit story†in both the US and the UK, which they believe could see a major CMBS default.

From Immobilienblasen.

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http://ftalphaville.ft.com/blog/2009/06/29...equal-subprime/

BNP Paribas analysts are worried about the health of the UK’s commercial real estate sector. In a note released on Friday, they warned that a “combination of rising vacancy rates, falling rentals and extraordinarily difficult financing conditions will almost certainly drive UK CRE losses higher.â€

Analysts Vivek Tawadey and Olivia Frieser contend that CRE is the “next leg of the credit story†in both the US and the UK, which they believe could see a major CMBS default.

From the note (any emphasis FT Alphaville’s):

Bonds backing CRE assets of a UK property investor (Simon Halabi) are likely to default on £1.15bn of debt. In this particular case, the values of the nine “prime†London office buildings (included the offices of JPM, the UK headquarters of Aviva, the Naval and Military Club amongst others) that were securitised have fallen from £1.8bn in November 2006 to £929mn as of 8 June, a reduction of almost 50%. This is leading to a breach of its loan to value covenant under the credit agreement that must be rectified within 10 days, else it would lead to an event of default. Equity injections (or other measures to deleverage) could help, but given the environment, one has to question whether this is possible.

Still, they also contend that while the big picture remains negative, the pace of bad news coming out of the sector has declined:

A combination of falling rentals and rising vacancy rates continues to weigh on credit quality. According to the May- 09 RICS survey, UK CRE activity continued to decline in Q1/09 after a record fall in Q4/08. According to IFD, UK commercial properties values have been declining fast with peak to current declines of around 45%, with major declines noted in all major segments - retail, offices and industrials. The good news is that the pace of deterioration moderated across the three sectors (office, retail and industrial) particularly industrial, though retail remained weak. Although the number of enquiries to occupy space continued to decline, the pace of decline moderated, from an all time low. The confidence in the outlook for rents fell to the lowest level in the survey’s history.

This was posted yesterday.

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The divergence between commercial and residential property prices shows just how inefficient the housing market is in this country.

In broad terms, commercial property is down 50% while residential property is down 25%. This difference tells me that commercial property prices reflect the economic fundamentals (and are consistent with the changes of bank shares and equity markets in general) while the residential market is in a fantasy land.

Fantasy will have to give way to reality if economic conditions remain as weak as they are at the moment. Calls for a further 40% to 50% drops from here are not as unlikely as they sound. They are required to align changes in residential and commercial properties.

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The divergence between commercial and residential property prices shows just how inefficient the housing market is in this country.

In broad terms, commercial property is down 50% while residential property is down 25%. This difference tells me that commercial property prices reflect the economic fundamentals (and are consistent with the changes of bank shares and equity markets in general) while the residential market is in a fantasy land.

Fantasy will have to give way to reality if economic conditions remain as weak as they are at the moment. Calls for a further 40% to 50% drops from here are not as unlikely as they sound. They are required to align changes in residential and commercial properties.

Land for residential development is also down 50% apparently.

There is a total disconnect here between homeowners and the rest of the world.

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Land for residential development is also down 50% apparently.

There is a total disconnect here between homeowners and the rest of the world.

True.

For the life of me, I cannot understand house prices in the context of either commercial property or land prices. Something has to give.

There must be a trade somewhere we we can sell the house price indices forward and buy a very good proxy for land / commercial property prices and try to arbitrage this situation.

Any thoughts?

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The divergence between commercial and residential property prices shows just how inefficient the housing market is in this country.

In broad terms, commercial property is down 50% while residential property is down 25%. This difference tells me that commercial property prices reflect the economic fundamentals (and are consistent with the changes of bank shares and equity markets in general) while the residential market is in a fantasy land.

Fantasy will have to give way to reality if economic conditions remain as weak as they are at the moment. Calls for a further 40% to 50% drops from here are not as unlikely as they sound. They are required to align changes in residential and commercial properties.

I wonder if there is a chart that measure commercial property value in any way historically as a guage against where it sits - overvalued/undervalued. I wonder if it was even more overvalued than residential property (which would quite some feat)...... as I recall there was a lot of discussion about the overblown nature of the commercial property market (even more than residential) in the papers for months and months before the slide came. I remeber one auction where barclays were selling branches and these were all snapped at around a 3% yield......

It wouldn't have surprised me if commercial property bubbles where they have occurred in the past have not deflated quicker than residential housing bubbles for all sorts of reasons... differences in the way market sentiment acts in those markets being one.

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