 |
| Author | Post |
|---|
Roy
Quasi-Infallible Egocentric Tyrant
| Joined: | Mon Apr 4th, 2005 |
| Location: | Washington USA |
| Posts: | 4264 |
| Status: |
Offline
|
| Mana: |  |
|
Posted: Wed Oct 7th, 2009 09:46 pm |
|
http://my.nowpublic.com/tech-biz/whip-comes-down-hotel-defaults-foreclosures-rise-california
When the whip comes down"- The Rolling Stones.
The real estate California earthquake has begun.
This news would be the first tremor of the oft-predicted commercial real estate crash, the third bubble to crash from our "irrationally exuberant" economy of the late '90s, which so far has included two stock market crashes and a home real estate crash as well. All of this could have been prevented with tighter money policies and with higher credit standards. We had such standards until Fannie Mae and Freddie Mac changed their lending standards in an attempt to "greenline", as it was called, loans to areas where poorer minorities lived.
The creation of what came to be called "sub-prime" loans was not the only element responsible for the crash, but it contributed. The Wall Street firms actually did most of the heavy lifting by piggy-backing the mortgages as bonds to be sold to investors overseas who were taken in by Moody's AAA rating of the bonds.
The bonds were essentially of what is called "junk bond" quality. That is, the bonds represented risks so high that the interest on them should have been around 25% to cover the losses in that area, and Moody's should have refused to rate them, having no value, as "junk bonds".
The whole thing spurred a rise in real estate prices as more and more buyers got in on the bottom driving it all upward, even at the top. But, as one of the several experts said in his interview in CNBC's House of Cards, the best reporting I have seen on this, there was no real increase in income to spur these sales.
The expert warned Bear Stearns and bet against the market making himself hundreds of millions of dollars, while Bear Sterns, and Lehman Bros. went down, with others surviving duet to privileged positions with Bush's Secretary of Treasury Paulson, ex-director of Goldman Sachs.
Now, comes the commercial real estate crisis. Same protagonists. Same mentality.
With the same wads of cash pumped into the economy by the Fed and then leveraged, multiplied, by the banks and financial institutions, commercial real estate boomed, with hotels and offices building thrown up by operators who had the intention of making their money in the financing of construction, sales, of the commercial real estate and then getting out, leaving a lot of "bagholders" in their wake. The very boom that fed all this contributed to what was called "affluenza" in Southern Californian, as people fed themselves economic goodies from the proceeds of this speculation and boom based on no real value.
Now the piper wants his due, and, with an economy falling farther and faster into an abyss and no respite in sight, the credit that fed business travel and personal travel has dried up.
So, now, the commercial real estate dominoes have begun to fall.
The banks who supported this are next. The jobs are lost in the hotel and resort industry. Tax revenues fall, and whole thing becomes the Creature from the Black Lagoon pulling the economy down.
Hotel defaults, foreclosures rise in California
In the state, defaults and foreclosures are up fivefold since Jan. 1.
By E. Scott Reckard and Hugo Martín
More California hotels are being pushed into foreclosure as tourists and businesses alike scale back their travel plans and owners are unable to pay their mortgages.
Statewide, more than 300 hotels were in foreclosure or default on their loans as of Sept. 30 -- a nearly fivefold increase since the start of the year, according to an industry report released Tuesday.
The list of troubled properties includes the St. Regis Monarch Beach in Dana Point, the downtown Los Angeles Marriott, the Sheraton Universal and the W hotel in San Diego.
Most struggling hotels remain open, but industry experts believe many properties are likely to be closed down in the months ahead, even if they are not in foreclosure, because they are losing so much money. The owners of the renowned Quail Lodge Resort and Golf Club in Carmel, for example, plan to close the hotel Nov. 16.
"I have never seen so many lenders contemplating mothballing properties," said Jim Butler, a hotel lawyer and chairman of the global hospitality group for Jeffer, Mangels, Butler & Marmaro. "It can and it will get worse for the hotel industry."
The problem is not unique to California, but the effect is being felt especially hard here because of tourism's importance to the state.
In Southern California alone, there were at least 140 hotels in default or foreclosure in September, including 55 hotels in the Inland Empire, 33 in Los Angeles County and 30 in San Diego County, according to the report by Atlas Hospitality Group. Statewide, 260 hotels were in default on their loans and 47 had been taken over by their lenders in foreclosure, the Atlas report said.
The industry's woes are compounded by the sour commercial real estate market, which has left many resort operators owing more than their properties are worth. Even as they struggle to make payroll, scores of resorts and inns have given up on paying their mortgages, fueling the skyrocketing level of defaults.
"It's a prolonged downturn, and it will be a long time before we get out of it," said hotel broker Alan X. Reay of Atlas Hospitality, who tracks foreclosures and defaults in the state.
Part of the problem is that unlike home loans, mortgages on larger hotels typically are supposed to be repaid in full after five to 10 years. Many of them are coming due now. But like their residential counterparts, many hotel owners refinanced their places at the top of the real estate market, often taking equity out of their properties. So the loans are ballooning at just the time when there are few guests at the hotels, and the properties are worth little.
"We expect this number to rise dramatically by the end of the year and into 2010, because we're seeing so many hotels operating under forbearance," Reay said.
____________________
"The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
|
*Phil*
Opinionated Interventionist
| Joined: | Thu Apr 21st, 2005 |
| Location: | North Carolina USA |
| Posts: | 3490 |
| Status: |
Offline
|
| Mana: |   |
|
Posted: Thu Oct 8th, 2009 03:43 pm |
|
The pillars come tumbling down. I figure this epic paradym wreak into rubble will continue until it is all dust and smoldering embers. Around 2012.
Dropping Rents Will Drag House Prices Down with Them
http://finance.yahoo.com/tech-ticker/article/349606/Dropping-Rents-Will-Drag-House-Prices-Down-with-Them
The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal. This is the highest vacancy rate in 23 years.
Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record.
This is good news for renters and bad news for landlords. It’s also bad news for anyone who owns and would like to sell a house.
Why are rising rental vacancies bad news for homeowners?
Because rising vacancies put pressure on rents, as landlords have to cut prices to woo a smaller pool of tenants. As rents drop, meanwhile, one of the key measures of house-price value–the price-to-rent ratio–also changes, and not for the good.
____________________
Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
|
Current time is 01:10 am | |
|
|
|
|
