The Global Financial Crisis and Real Estate (part 2)

The Global Financial Crisis and Real Estate (part 2)
So…To define the crisis. The stock market is dropping like a rock. People think the banks aren’t lending. The banks aren’t lending to each other. Whether from fear or prudence companies are cutting back everywhere they can. Families and individuals are looking at retirement plans that have been diminished on paper. They are cutting all unnecessary spending right as we come into the Christmas season. This is the time when retail operators balance their books. The retail operators know their books will not balance this year.
What we have is a disastrous non flow of money. It is mostly, not all, due to fear. How does all of this trace back to the sub-prime crisis and the housing bubble? The housing bubble comes from greed and stupidity. The sub-prime crisis comes from greed and dishonesty. What will be the effect on the real estate business? Let us examine one sector at a time.
Retail…The grinch that stole Christmas is probably going to get away with it this time. A lot of retailers are going to go broke. A lot of shopping centers are going to have empty spaces. A lot of big boxes will be standing dark. How many of these properties, especially the big boxes, were built by developers and sold to investors at very low cap rates based on credit tenants? These properties, if they rent at all, will not command the same rents they did originally. Some will certainly go into foreclosure. Will they sit empty until the next boom? Will they become flea markets and truck driving schools or churches? The shopping centers will also lose income and therefore value. There will be buying opportunities for patient capital. That patient capital better have some reserves for renovation in the next boom. No-one wants a shopworn old property.
Part 3 will examine other market sectors.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com