Skip to main content

Commercial property bubble?

Commercial property may be headed for trouble, at least as far as the bond market is concerned.

Bloomberg reports that action in the derivatives market for commercial mortgage securities is reflecting increased worries of default risk and investor skepticism over the sector's strength.

Excerpt from, "Deadbeat Developers signaled by Property Derivatives".

In the bond market, commercial property investors are about as creditworthy as U.S. homeowners with subprime mortgages.

``Commercial real estate is a full-blown bubble that feels very much at a bursting point,'' said Christian Stracke, an analyst in London at CreditSights Inc., a fixed-income research firm.

``There's a fairly toxic mix of factors at work.''

The cost of derivatives protecting investors from defaults on the highest-rated bonds backed by properties more than doubled in the past month, according to Markit Group Ltd. Prices suggest traders anticipate defaults rising to the highest level since the Great Depression, according to analysts at RBS Greenwich Capital in Greenwich, Connecticut.

Sentiment is turning on the once hot commercial property market.

I don't know if this is a case of piling on by traders and the media after investor Andrew Lahde, recently noted for his firm's stellar subprime short-driven returns, voiced his dour outlook on commercial property-backed loans. Or could it be that this market's number really is up?

Well, I'm no expert here, but let me introduce you to someone who is.

Meet Sam Zell, noted property investor and recent seller of Equity Office Partners (to Blackstone for $39 billion).

Zell spoke to Bloomberg in a 21 minute interview segment earlier in the year about the sale of EOP to Blackstone, and the property market in general.


He was gracious about not calling a top in the property market after completing the EOP deal, noting its merits from the perspectives of both sides in a seperate interview with FT.com.

In fact, he recently offered the opinion that rents from commercial property represent "income from bricks and mortar" that investors will increasingly want in the future. Zell also said that the monetization of real estate assets is a trend that has only started.

So there you have it. One seasoned investor's view of the long-term trends affecting commercial property. Does this mean that current worries over the state of the commercial property market will prove to be nothing more than a prelude to a short-term shakeout?

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li