Tuesday, May 15, 2012

Another prophetic doom and gloom article: Commercial real estate heading for a deep freeze- Part 1 of 3

I am seeing a flurry of buying activity. Investment groups want income producing properties and they want it now at aggressive pricing. I was sharing this with an Atlanta financial advisor and jokingly said, "I think we're all trying to make a buck [create income streams] before the crap hits the fan and the fan breaks."

Only he completely agreed. His high net worth clients are all running for the hills and taking moves now to protect their assets. He then made a few comments about the coming real estate reality. I hoped he was being pessimistic, but here is an article that extrapolates many things he said. If all you're hearing is a rosy outlook, I invite you to read this article and the two future ones for an alternative perspective.

Key Quotes:
"Investing in property is very far from being a safe, one way bet."

"The "proceed with care" warning that should accompany any property investment applies through all stages of the economic cycle. However, it is especially true today. Healthy commercial and retail property markets require two things, namely a ready supply of debt financing and a robust economic environment. Neither of these conditions pertains at present in any major Western economy."

"Among the biggest negatives has to be the fact that as far as lending on property is concerned, there is now a credit crunch that is getting to be as bad as that which followed the collapse of Lehman Brothers in 2008."

"Property lending carries a substantial capital reserve requirement so it makes eminent sense for banks to pull out of commercial property lending, or to make dramatic cuts in the amount that they are prepared to lend. This is extremely bad news for the property markets since it is the equivalent of putting a "deep freeze" on the market."

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