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Warren Buffett, the nation’s second-richest man with a $72bn fortune, owns the biggest mobile home manufacturer in the US, Clayton Homes, and the two biggest mobile home lenders, 21st Mortgage Corporation and Vanderbilt Mortgage and Finance Company. Buffett’s trailer park investments will feature heavily at his annual meeting this weekend, which will be attended by more than 40,000 shareholders in Omaha.

Such success is prompting ordinary people with little or no experience to try to follow in their footsteps.


‘Don’t make fun of the residents’



Frank Rolfe, who runs a weekend tour with his Mobile Home University showing ordinary Americans how they can follow him and make big profits from trailer parks, warns his students not to be disparaging about trailer park tenants. Photograph: Mae Ryan/the Guardian

On a bright Saturday morning, under the Floridian sun, Frank Rolfe, the multimillionaire co-founder of Mobile Home University who is the nation’s 10th-biggest trailer park owner, conducts a tour of parks around Orlando, Florida. A busload of hopefuls, ranging in age from early 20s to late 70s, hangs on his every word.


As the tour approaches its first stop, Rolfe repeats a warning which earlier flashed on to a screen in a conference room of the Orlando airport Hyatt hotel: “When we are on the property, don’t make fun of the residents, or say things that can get us in trouble or offend anyone. I once had a bank come to a mobile home park and say in front of my manager, ‘Only a white trash idiot would live in a trailer.’”



> more: http://www.theguardian.com/lifeandstyle/2015/may/03/owning-trailer-parks-mobile-home-university-investment?utm_source=nextdraft&utm_medium=email

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  • 2 months later...



What Bubble? 6 Castles That Are Cheaper To Rent Than An Apartment In NYC Or SF


1. Antic Castle, Tuscany, Italy- 11 bed, 11 bath, $4,040/month


Nestled on a private hill and surrounded by trees and vineyards, this massive eleven bed castle can comfortably house up to twenty five guests. Built in the Middle Ages, this former aristocratic residence has been renovated to include modern day luxuries such as air conditioning, central heating, and satellite television. However, the 17th century stone fireplaces and beautiful terracotta floors still exude a warm, historical charm.








Or you can rent…


Stuyvesant Town, New York City, NY- 2 bed, 1 bath, $4,000/month


Newly renovated, this contemporary two bedroom apartment has spacious bedrooms with generous closets, an adorable kitchen with modern appliances, and a stylish bathroom with a sparkling tub. Along with concierge service, this apartment building also comes with a fitness center, residents lounge, and on-site laundry. Having twenty five guests may be a little tight, however.






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On the Brink (of a collapse) together : Junk bonds and property ?


IYR / Income-producing Real Estate - vs. HYG and TLT ... 10-years : since 1/2008



They may both be at a key inflection point, as in Sept. 2008.

Last time, TLT held as IYR and HYG collapsed - there was a "flight to quality" into TLT


Last time they collapsed together. But Real Estate may hold better this time, since it is not over-financed,

and as likely to be sold if rates go up. Whereas the cash flows and earning of many companies that use junk debt

may be highly vulnerable, as Jim Puplava has explained


Jim Puplava: "This Is Not 2007-2008"



Household debt to income, loans outstanding, owner’s equity in real estate and debt service ratios have never been this good

The same thing holds true on the corporate side: corporate net worth, debt ratios, liquidity ratios have never been this good [and] companies are sitting...

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The Next Crisis: Bond Funds (over-geared corporates, rather than a housing crisis?)


LQD -vs- TLT ... 10-yrs : 5-yrs : 3yr-D : 6mos-D / 10-d // ALL-10yrs : 5yrs

LQD-5yr :



HYG / iShares iBoxx $ High Yield Corporate Bond ETF ... 10-yrs : 5-yrs : 3yr-D : 6mos-D / 10-d // ALL-10yrs



Carl Icahn lays out the risk

Carl Icahn ...... danger ahead


Jim Puplava explains the coming crisis in detail

MP3 : http://www.financialsensenewshour.com/broadcast/fsn2015-1003-2.mp3

n this week’s Big Picture, Jim outlines where he believes the next financial crisis will begin; in the bond market. He plays clips from the recent Carl Icahn video regarding danger in the high yield bond market, as well as discussing how bonds are affected when interest rates begin to rise. In the current cycle, there has been massive speculation in junk bonds, emerging debt and corporate debt. Starting from a base of a 5,000 year low in interest rates, the only direction left for rates is up. Jim and John also discuss the liquidity issues in the bond market, and the risks involved, particularly the liquidity dangers in the high yield (junk) bond sector. He also looks at the potential timing of when a bond market crisis could begin, and what would drive it. Jim also covers commodities and how to navigate Phase III of the bull market in stocks.


> http://FinancialSense.com


n the second part of the program, Jim and John go on to discuss concerns about bond mutual funds. As most listeners know, Jim has long advocated individual bond ladders for investors, consisting of deeply liquid bond issues, where investors know exactly what kind of interest payments they are going to receive. Jim’s strategy stands in contrast to bond mutual funds, which present several problems for investors. First, the funds are more likely to be a play on the price of bonds rather than on income. In a rising rate environment, double-digit losses can occur, which may come as a surprise to the many boomers owning these investments for “safe” returns. But an even larger drawback to bond funds is that you can potentially suffer when others panic and the fund manager is forced to sell illiquid bonds at unattractive prices. As an example, Jim reviews a recent Wall Street Journal article (see here) explaining the potential liquidity issues with several well-known bond funds.

While those who have been predicting higher interest rates have been wrong for many years, Jim repeatedly reminds investors to take seriously the Federal Reserve’s warning to the markets that rates will eventually go higher. People who are hunkered down in bonds may get an unwelcome surprise when the current economic uncertainty passes.


> http://www.financialsense.com/contributors/jim-puplava/this-is-not-2007-2008


Funds holding illquid (high yield) bonds will collapse in price, once the "rush for the exits" starts.

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Note from Tony C's Blog

Re; FORECLOSURES - Good or Bad News ?


Dex T says:

Foreclosure crisis lingers: Repossessions spike 66%

“Bank repossessions, the final stage of the foreclosure process, jumped 66 percent year over year in the third quarter of this year, according to RealtyTrac, a foreclosure sales and analytics company. It’s the largest annual rise ever recorded in bank repossessions by RealtyTrac. More than 123,000 homes went back to the bank in just three months.”


  • CampFreddie says:

    The final capitulative purge, very bullish indeed imo.

  • tommyboys says:

    This is only because of the “stops” they were required to put into the system over the past half decade. These are all expiring now so the houses that should have been taken back 3-4-5 years ago are now available to do so. Media loves to scare joe six pack – again fear sells. Stop buying/spreading fear. OK that’s definitely last post

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No longer a Safe Haven?


Chart from there




But, it's all changed... (as Bloomberg reports)

New Yorkers who want to buy a high-end retreat in the Hamptons have plenty of options to choose from.


Sales of luxury homes in the area, known for its beachside mansions attracting financiers and celebrities, tumbled 16 percent in the third quarter from a year earlier to 52 transactions, according to a report Thursday from appraiser Miller Samuel Inc. and brokerage Douglas Elliman. The inventory of such properties -- defined as the top 10 percent of the market by price -- climbed 34 percent to 292.


Wealthy buyers on Long Island’s East End are taking a pause after several years of heated sales, leading prices to fall as more houses come to the market. The median price of Hamptons deals completed at the luxury level dropped 18 percent from a year earlier to $5.3 million, in contrast to an increase for lower-cost homes.


“People who had the cash, they came out and bought the last couple of years so they’ve kind of leveled off,” Dottie Herman, chief executive officer of Douglas Elliman, said in an interview. “They’re still here, but the demand has just gotten flatter.”


> more: http://www.zerohedge.com/news/2015-10-23/international-buyer-has-been-absent-unsold-hamptons-mansions-pile-bubble-bursts

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Zell dumping is not a bullish sign.

In Philly, we are seeing rising prices and strong buying demand in the sector where I have invested.

And it is only a little higher than the lows of some years ago, not massively higher.


Here's Philly



But if you look more closely at the articke, you will see that Zell is shedding the Suburban stuff, and buying in Urban locations

"where young people are moving and where it is more difficult to build..."



The collapse of the housing bubble transformed America into a nation of renters

as the following chart of the homeownership rate makes abundantly clear:


That means that when Janet Yellen talks about low inflation, she’s talking to a nation which is struggling to cope with the following reality on a day to day basis:


When looking at the above, and when considering that, as we reported over the summer, in no state can a minimum wage worker afford a 1-bedroom apartment, one might be tempted to suggest that the top is in.

But not so fast.

It’s also possible that between crippling student debt and demographic shifts, the homeownership rate will continue to plunge.

As things stand today, household formation is being delayed as new graduates cope with i) a jobs market that churns out waiters and bartenders rather than breadwinner jobs, and ii) a student debt burden that averages $35,000 but is in many cases far higher. Meanwhile, a shift in the population to include more Hispanic Americans is also putting pressure on the the percentage of Americans who own a home. These factors could provide a tailwind for the market for the foreseeable future and that, in turn, means rents will only rise further.


One person who’s betting that we may have hit peak-rent is billionaire Sam Zell who just dumped a quarter of the apartments held by his real estate company for some $5.4 billion. Here’s more via WSJ:

Why is the deal particularly notable? Because Zell has traditionally had a very keen nose about such things as "market peaks": the 74 years old is credited with calling the top of the real-estate market in 2007, when he sold another of his companies, Equity Office Properties Trust, to Blackstone for $23 billion. Soon after, the commercial-property market crashed as prices fell and debt defaults surged.

Sam Zell has agreed to sell more than 23,000 apartments controlled by his real-estate company, Equity Residential, for $5.4 billion to Starwood Capital Group, the companies said.


The transaction, announced Monday, represents about a quarter of the units in Equity Residential’s portfolio of apartments and would be one of the largest since the recession. It also comes on the heels of Blackstone Group LP’s announcement on Tuesday that it is buying Stuyvesant Town and Peter Cooper Village in Manhattan for $5.3 billion.


Across the commercial-property sector, which includes office, retail and apartment buildings, growing numbers of investors have begun to question how long good times can last after a steep run-up in prices since the downturn.


Record values for offices and hotels in the U.S. and Europe, fueled in part by central banks’ multiyear efforts to keep interest rates near record lows, have prompted some big investors to reassess the market. Apartments have been especially hot, with average U.S. rents climbing 20% over the past five years, according to research firm REIS Inc.


The transaction brings together two savvy deal makers on opposite sides of the trade, Mr. Zell and Starwood Capital Chairman and Chief Executive Barry Sternlicht.

As for the current cycle, this deal merely marks the latest liquidation by Mr. Zell’s since 2012. Back then, Equity Residential was a buyer. The firm teamed with AvalonBay Communities to purchase apartment giant Archstone for $6.5 billion, not including about $9.5 billion in debt.

But Equity Residential has become “less aggressive as buyers of assets” in recent years, Mr. Zell said in an interview late Friday. Instead, it is getting out of suburban markets and into downtown urban centers, where young people are moving and where it is more difficult to build, he said.


Most of the 23,300 apartment units in the deal, roughly a quarter of Equity Residential’s total, are low-rise and mid-rise units in suburban markets in and around southern Florida, Denver, Seattle, Washington, D.C., and Southern California. Analysts expect a significant amount of new supply to be concentrated in those markets in coming years.

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TRANSPORT MATTERS : Buy a house in Philly, Not a Car to keep inflation in check!


My Further Comment on the article about Zell seling in post #40

- The article says:

"...in no state can a minimum wage worker afford a 1-bedroom apartment, one might be tempted to suggest that the top is in. "


Here's something that is little discussed:

In some cities such as Philadelphia, if people earning a decent middle class income get rid of their cars, and use public transport,

then they can afford to buy a home. All they need to do is live close to their jobs - walking distance, biking distance, or maybe a short

duration commute using public transport...



(The largest rental rises has been near the Job growth in the Center City area -

Four large skyscrapers are currently under construction, suggesting more job growth)


Here I am thinking of younger people, starting out. Perhaps they attended University in Philadelphia, liked the city, and decided to stay on.

They might rent for a few years, and then buy. That works in Philly, where home prices are cheap, but not so well in Manhattan,

where home prices are very expensive - about 8X Philly !.


Philadelphia median home prices: PH-update / NYC mean selling price is: $1.196 Million



If you buy a home for $150k in Philly, and finance 80% with a 4% mortgage, the monthly interest cost is just $500

Rental yields are attractive - you can get over 10% pretax on 80-100 year old secondhand homes in many parts of the city.

(I recently bought one at about half the median price, and my rental return is about $900, yielding 11%+ pretax, after all expenses.)

Because overall US rents just keep in rising - this chart is from post #40


US Mean rentals, Asking price for Vacant units - up to Q2-2015


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7 Housing Charts


These 7 charts derived from this week’s release of new house sales data from the Census Bureau illustrates just how bad things are.

New house sales fell versus September 2015 and remain barely above the housing depression lows, a mere fraction of 2005 bubble levels.




This recovery has not even reached the levels reached at the bottom of the 1992 or 1974 recessions. It has gotten back to the 1982 recession low, but there are 45 million more households today than in 1982.



The number of full time jobs has returned to 2007 levels. Normally new house sales and jobs growth correlates somewhat. But while the number of jobs continued to grow since 2013, new home sales haven’t kept pace. That’s because most of the jobs being created are too low paying and too insecure to support the purchase of a home. Because of ZIRP, corporate executives find it more profitable to fund stock buybacks or buy competing companies and fire workers, than to invest in their workforces.



> MORE: http://www.talkmarkets.com/content/us-markets/7-astounding-charts-show-how-badly-the-fed-failed-the-housing-market?post=76630

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Chinese developers are turning to US real estate investments as an alternative to investing in China

The real estate markets in major markets such as New York, Los Angeles, Chicago and San Francisco are most popular to Chinese. These urban cities have seen a flurry of investment from large Chinese developers. We expect to see smaller and middle size Chinese developers to follow their lead. Here is a list of recent investments by Chinese developers into US.

  • Fosun International’s $725 million purchase of 1 Chase Manhattan Plaza in New York City was the biggest foreign investment in commercial office space in 2014.
  • Zhang Xin and Pan Shiyi partnered with Brazilian banking magnate Moise Safra to take a 40 percent stake in the General Motors building in NYC for $700 million.

  • Wanda Group owned by China’s richest man Wang Jianlin, purchased AMC Cinema chain for $2.6 billion in 2012. They also spent $900 million on a 90-percent stake in a Chicago mixed-use development in 2015 with recent news to develop a 93 story Wanda Vista Tower in downtown Chicago.

  • China Vanke, China’s largest residential developer, will develop a four-building, 656-unit condo development in San Francisco called Lumina in partnership with Tishman Speyer.

  • Xinyuan, founded by Zhang Yong, bought land in NYC for $54 million following successful projects in Nevada and California. It recently announced its fourth investment project in Manhattan.

  • Landsea is investing $1 billion in the U.S. housing market building condominiums in San Francisco, Los Angeles and New York City markets and exploring Washington DC and Boston markets.

  • Shanghai-listed Yantai Xinchao Industry Co. will buy Ningbo Dingliang Huitong Equity Investment Center, an investment company owning oil properties in West Texas valued at $1.3 billion.

  • Greenland Group is developing $1 billion development near downtown Los Angeles including a metropolis hotel, condominium and shopping complex.

  • Shenzhen Hazens bought Luxe City Center hotel and two adjoining lots for $105 million in downtown Los Angeles. The company is looking at a $250 million development costs.

  • Oceanwide Real Estate Group is bought land in downtown Los Angeles looking to build 3 40 story towers with condominiums, hotel rooms and nearly 167,000 square feet of retail space.

  • Gemdale Corporation, one of China’s largest blue chip real estate developers, to co-develop a $125 million mixed-use project in Hollywood, which will be the first real estate investment in Hollywood by a major Chinese company.

We continue to see the trend of Chinese developers investing into US real estate. Join us in Los Angeles on January 20th at the Chine Private Equity Forum to discuss the investment process and how to partner with Chinese developers.

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Just read the comments on the shoddy workmanship



Fri, 11/06/2015 - 21:02 |6760414Xatos
Believe me, I'm a superintendent in Texas involved primarily in multi-family new construction, whether they're 5 building garden-style apartments or 24 story high rises, and let me tell you I've been calling this for a long time.

This bubble, at least in Texas, is freaking incredible. These things are shooting up left and right.

Meanwhile, for sale signs in everyone's yards.


*edit* By the way, in the years I've been doing this, lately I've noticed a trend... all of these projects are pushing harder than ever to complete early or stage immediate TCO. Didn't take long and I realized I bet these banks are pushing real hard to have these GC'S turnover these projects as fast as possible. These banks know this is a huge risk, as any day now you may be caught with your pants down amidst 50 incomplete projects that may never get done come SHTF.

Fri, 11/06/2015 - 21:38 | 6760517Xatos
Exactly. I'm on a job right now with 2 phases, building 1 and then 2. I just built a bridge that connects the two. Well, there's a lot of work left on this bridge still, all of which is overhead work. They STILL got a TCO on Bldg 1 despite the overhead work going on.


Unheard of. We made them sign a waiver releasing our liability. They happily signed, they didn't even care. Go go go go. Build and gtfo asap.

Part of the rise in construction costs by the way, as the article mentions , are related to "skilled" Mexican labor forcing contractors to, oddly enough, raise their bids to compensate for all of the overhead that stems from fixing fuck ups these guys are doing.


Trust me on that one.



Fri, 11/06/2015 - 22:51 | 6760707willwork4food
But it's not just the "unskilled Mexicans" it's also the unskilled high school & associate degreed that can swing a hammer just like they think they can swing their dick.


I've seen this right after 2008 and it didn't end pretty. A LOT of shoddy construction going on to save a buck. In a slow time we responded to a contractor that wanted tile set in a home...like in 3 days...COMPLETED. He said he didn't care what it looked like in a year+1 day..just get the work done. We refused.


I want no part in it.



Fri, 11/06/2015 - 21:47 | 6760548willwork4food
In SE VA, there is a huge multi story apartment complex maybe 10-15 deep that have gone up over the summer next to a high school. I was working on a job and had to drive past it for 7 weeks looking at all the lumber placed outside (uncovered) while the workmen were building. Over a few weeks with the rain, humidity and sun I noticed there were many buildings that appeared grey and moldy because they had not covered the roof or side with Typar or tar paper. Sure enough one day I drove by and NO work was being done but I saw them talking with what I suspect was the city...who denied their building until they correct the mold.. I saw mulitple roofs being replaced by new wood after that. But the walls still look moldy. I would hate to rent in that place..EVER.

The fucking GC on the job should be castrated then fired. In that order.




Sat, 11/07/2015 - 01:13 | 6760935Xatos
Brother I can give you another example. I'm on yet another job where a 7 floor garage was "completed" with only 50% of the post-tension cables installed. It delayed the job a good 6 months, you've never seen so many stilts propping up a massive structure in your life, and from what I understand cost the GC'S all their profits, and this before the building was even halfway up.


Believe me, these Mexicans aren't doing the work white people won't do, they're literally fucking up everything they touch. Oh, by the way, their superintendent was Mexican.


Guess it helps speaking 2 languages. Doh


Fri, 11/06/2015 - 21:33 |6760504The best Sun
Imagine if you knew that an ice-age of indeterminate duration was coming due to a solar minimum such as the Maunder minimum.


Suppose you massively overbuilt cheap housing of the type you wished to force on the population in the temperate, sub-tropical and tropical zones of your human tax farm with 0% FED funds regardless of current needs.


Suppose through your mocking bird MSM and captured science institutions you created a fake, socially engineered fear of impending hot climate, so called "man made climate change" as a distraction and to suppress the same sort of build out activity in equatorial competitors and emerging economies.


Suppose tens of millions of people in your country alone are forced to relocate as climate refugees of the opposite type and in the opposite direction to that which many have expected?


What would happen to the price of said property when the great lakes no longer melt ....at all? When Food production collapses world wide.




I smell something.

Fri, 11/06/2015 - 22:01 |6760587stant
They always set the sheep up on the wrong side of the trade
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US Property - Recovery nearing an end?


If the e-wave count on this chart is accurate. the rally in General Housing stocks since the 2008-9 Low maybe be nearly over


HGX / Housing General Index ... All-Data : 10-yrs : 5-yrs : 2-yrs: Last: $232.99 / PHM-10yrs / IYR-10yrs



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  • 2 months later...




Who Can Afford The American Dream? "Rental Rates Have Reached Apocalyptic Levels"




A Forbes columnist asked the question: Can Millennials Afford The American Dream? Forbes’ Kerri Zane writes:

The local radio news station in Los Angeles recently reported that the rental rates in this city have reached apocalyptic levels. So it stands to reason the next best step is to purchase a home. Easier said than done, particularly for millennials.


At the end of last year my 25-year-old daughter and I were discussing this issue. She and her live-in boyfriend had been exploring the notion, but with the median home price in Los Angeles exceeding $500,000.00, it is completely out of reach for them. Between juggling school loan payoffs and each working in the freelance world of entertainment, saving for a down payment and/or qualifying for a mortgage, in this day and age, is tough.



The the MORE Reason to "get out of Dodge", and move away from LA.


Try a much more affordable city like Philadelphia, where in 2015 I bought a 1,300 sf home with 3BR, near the trolley line,

for just $75,000. It CAN be done. But chasing the exact same dream as so many others in LA is not the way to do it

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It Starts: San Francisco Office Boom Deflates, but Fitch Says It’s “Unlikely to Collapse” this Time


by Wolf Richter • March 22, 2016

Other tech-heavy office markets too.

For some time, we’ve heard through the rumor mill that commercial real estate brokers in San Francisco are getting nervous. Then Savillis Studley released its report on the San Francisco office market for the fourth quarter. A very mixed bag for the first time since 2009. And now even Fitch Ratings is getting antsy.

. . .

A prominent sublet space to hit the market is an entire floor at Twitter’s headquarters. Twitter has been laying off, and it won’t need this space. This comes after Twitter abandoned plans to lease an additional 100,000 square feet at the nearby headquarters of Square, the other company where Twitter CEO Jack Dorsey is the CEO. Those 100,000 sf then came on the market as well.

Yet, according to Savillis Studley, overall asking rent in Q4 “spiked” 14.1% year-over-year to $63.87 per square foot. Class A asking rent “jumped” 11.7% to $65.94 per square foot.


As new office space came on the market, absorption has been negative for two quarters in a row, reaching -500,000 sf during Q4. With supply and vacancies up, even as prices soared, something had to give: demand collapsed. Tenants leased 5.9 million square feet in 2015, down 35.7% year-over-year.

San Francisco cloud-storage startup Dropbox is emblematic of what is going on in tech-based local economies, including commercial real estate (CRE), which has been in a phenomenal boom in terms of lease rates and construction, powered by a global money tsunami.

Dropbox does what Google, Apple, Amazon, IBM, Microsoft, and other companies with cloud-storage services are doing. So this is going to be tough. Nevertheless, it has a “valuation” of $10 billion, as of its last round of funding in January 2014. It’s one of the deca-unicorns. Or perhaps, “was” because, to let some folks cash out, it has authorized the sale of common stock on the “secondary market” at a 34% discount, BuzzFeed reported. While some discounting is not unusual in these situations, it is a big cut, reminiscent of the “valuations” cuts of other startups since last summer. Not a propitious sign.

. . .

With space seemingly in short supply and lease rates soaring, panicked companies awash with money, even startups with no revenues, have hoarded office space to grow into, thus injecting steroids into the office boom.

If they don’t need it, they can always put it on the market and sublease it. That’s the logic. But if push comes to shove, they will all put it on the market at the same time, just when practically no one needs more space.

There is an additional problem with startups: when the moolah dries up, many will burn through their cash before they figure out how to get a positive cash flow and sustain themselves. When these companies reach the end of their road, landlords end up with empty office space, and that too is going to hit the market.

These forces happen simultaneously. The office market turns into a glut. It puts enormous downward pressure on lease rates – and everything that comes along with them. Real estate is highly leveraged. When it gets ugly, a chain reaction mauls banks, creditors, and investors of REITs or commercial mortgage backed securities (CMBS). That’s what Fitch is warning about.

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Existing home sales are robust. They are also the fastest they have been at any time since the recession ended.




Consumers do not buy houses and cars unless they believe that the economy is on solid ground and that they will have a job six months from now.

The stock market got hit early in the year about the possibility of slower-than-expected growth in China, but is recovering nicely. In addition, net worth is at a record high level and climbing. Home sales are robust. Consumers have paid down tons of debt and are now in a position to spend. Jobs are climbing at a pace of 200 thousand per month. The unemployment rate has fallen to a level that is almost certainly at the full employment mark. Consumers are benefiting from lower gasoline prices. For all of these reasons we look for 2.4% GDP growth in 2016.

Stephen Slifer


> http://www.numbernomics.com/nomicsnotes/?cat=6&paged=4

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The U.S. commercial property market is stalling...


Commercial property includes warehouses, shopping centers, and office buildings. For the past six years, the market has boomed. Commercial property prices have nearly doubled since 2010, according to Real Capital Analytics. They’re now 17% above their 2007 highs.

This boom has made many developers, brokers, and mortgage lenders very rich. Investors in real estate investments trusts (REITs), publicly traded companies that often own commercial property, have also made huge returns. The Vanguard REIT Index, which tracks 153 major REITs, has surged 411% since March 2009. That’s more than double the S&P 500’s 201% gain over the same period.

Of course, all bull markets come to an end. And it looks like the commercial property market may have just peaked.


IYR / iShares U.S. Real Estate ETF ... All-Data :



U.S. commercial property sales plummeted last month...

February sales were down 47% from last year, as The Wall Street Journal recently reported.

Just $25.1 billion worth of office buildings, stores, apartment complexes and other commercial property changed hands last month, compared with $47.3 billion in the same month a year earlier, according to deal tracker Real Capital Analytics Inc. In January, sales were $46.2 billion.

Commercial property prices have also fallen for two straight months. That hasn’t happened in over six years.


In December, we warned that the commercial property market was softening...

We pointed out a huge drop in transaction volumes.

We also told readers Sam Zell was cashing out. Zell has made billions investing in real estate. He was one of the few real estate moguls to spot the last property bubble and get out before it popped. In February 2007, Zell sold $23 billion worth of office properties. Nine months later, the market peaked. U.S. commercial property prices went on to fall 42%.

Now Zell is selling again. In October, Zell’s company sold 23,000 apartment units, about a quarter of its portfolio. Management plans to sell 4,700 more units this year.


At this point, it looks like Zell “top ticked” the market again. Commercial property prices hit a record high in November before falling in December and January.


Cheap credit has juiced the commercial property market...

The value of commercial property loans hit an all-time high of $1.76 trillion last year.

Debt is a key part of the commercial property market. Most investors take out a mortgage when they buy an office building or shopping center. When debt is cheap, they borrow more money.

And it’s never been cheaper to borrow money. Dispatch readers know the Federal Reserve has held its key interest rate near zero since 2008. The Fed has suppressed rates to encourage borrowing and spending. This makes it cheaper to take out a mortgage or car loan, or to borrow with a credit card.


Now lenders are suddenly issuing fewer real estate loans...

The Wall Street Journal explains:

[L]oans are becoming harder to secure even for safe investments such as well-leased buildings. That is because broader market volatility has caused lenders who sell off their loans via bonds known as commercial mortgage-backed securities to grow wary. While the segment made about $100 billion in loans last year, it has come to a virtual halt today, lending executives said. If that continues, it will become more difficult for landlords who took out 10-year loans in 2006 to refinance today.

In addition to making fewer loans, lenders are lending out less cash on each loan they make. For the past several years, lenders would loan up to 75% of a property’s value. Now most lenders will only loan up to 65% or 70%, according to The Wall Street Journal.


The commercial property market could collapse without access to cheap money...

Property prices could quickly plummet.

(Casey Research - by email)

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