Residential Real Estate

In my recent hunt to help commercial property owners in the Las Vegas valley, I have run into a wall of frustrated owners and dissolutioned financial institutes. The problem is: The owners have seen the future and have given up! The financial institiutes are just downright dissolutional.

Since 2000, when Las Vegas was on the cutting edge of developing property and moving forward so rapidly, the whole Las Vegas Valley was expanding infrastructure, building homes, commercial property, and roads so rapidly, that it was most likely Las Vegas had the best roads, and infrastructure, etc. in the entire nation.

However, when Wall Street finally realized that they wouldn't be able to re-sell their inflated and over-priced CDO's and CMBS' at a profit anymore, Las Vegas Investment dried up. And the property owners just investing in Las Vegas because it was an easy FLIP for 5 to 6 years were stuck with their over-leveraged and over-paid for property. (It was easy for the FLIPPERs to walk away.)

Now, since most commercial property owners are aware that they really, really over-paid, they began walking away from these properties without even a glance backward. (Of course, it was the commercial property FLIPPERS at first.) Then, when job loss started mounting, SFR owners walked. The financial institutes were beginning to hurt. Then, that lead to the commercial financial institutes finding out that they really, really over-financed these over-priced commercial properties through their CDO's or CMBS' to begin to see they were the ones now stuck through foreclosures with an over-paid for, over-financed commercial property.

The problem is: Las Vegas values have plummeted. But, these financial institutions continue to believe that they will be able to re-capitalize these commercial properties through their asset managers. Unfortunately, these financial institutes are so far dissolutional from the reality of the situation, it is really, really sad.

At least the commercial property owners that have realized they need to TAKE THE LOSS, are walking away.

Unfortunately, the asset managers of these financial insitutions are the ones who have been telling their financial insitute clients that they can do the impossible: Re-capiltalize the property -- e.g. Bring back the over-value of three to four years ago.

"NOT GOING TO HAPPEN."

The proof of what I am saying is in taking a second look back at SFR/Condo reposessed properties.

These properties are selling -- foolishly -- to buyers who think that they are getting great deals. (As far as I can tell, SFR/Condo prices should be heading down again. Soon. I think.) But, so far this year, SFR property had been a regular sellable commodity. (Until, recently.) And, most are at extreme losses to the financial institutions.

But, commercial property, is NOT selling. Office complexes are the least attractive right now. Shopping Centers with National Credit Anchors are hangin in there, but the in-line tenants can't survive. Smaller retail centers, may hang on -- if the owner didn't do anything as foolish as maximizing his financial leverage in the past years. Industrial property is almost as vacant as office. It is a sad state of affairs for Las Vegas.

How does this change?

Well, 1.) Lenders -- and their asset managers -- have to realize that they are NOT going to re-coup anywhere near as much money as they believe they can. They have to sell at what the current value is. Playing the waiting game to find a qualified tenant willing to pay them the rent from two to three years ago, is foolish. (Now, I understand why asset managers are promising the unrealistic: the longer they asset manage a property, the more money they will make long term.)

And, 2.) Lenders have to lend -- even though they are sufferring. Recently, a lender told me that my buyer of an 80 unit apartment complex had to guarantee the loan even if my client put 30% down! What? Tightening lending now for qualified buyers is a massive mistake.

A 70% LTV (Loan-To-Value) never required a guarantee in the past. It wasn't even on the lenders lips when they were issuing vast amounts of money in the early 2000's.

3rd.) OR, they need to re-negotiate the existing loans on commercial property so that the current owners will NOT GIVE UP! and walk away.

I really think that a financial institute willing to do this is just around the corner. The problem, none want to be the first.