Clay Sparkman
There has been quite a bit of talk in 2009 about the possibility of a meltdown in the market for commercial real estate. I came across some statistics recently that were quite astounding in support of the idea that a wave of commercial defaults is coming. It is estimated, apparently, that there is currently 3 trillion in commercial real estate debt outstanding in the US. According to this particular source (which I’m sorry to say I don’t recall), 1.3 trillion of that debt will come due within the next four years. As we all know, there doesn’t appear to be much in the way of new commercial funding available for those current loan holders (or their potential buyers), so the above statistics—on the face of it–would tend to be worrisome.
Still, 4 years is a long way out. I personally suspect that we will get a much better feel for what is likely to occur over the long haul by looking at what happens in 2010. But I am not a prognosticator. You’d think that with a degree in economics, I might have the ability–or at least the inclination–to analyze and predict long-term economic trends. But I am not that kind of guy. I am more of a “sure it works in practice, but does in work in theory” kind of guy. I like the type of economics where you look at what happened and then play with the numbers and try to figure out why it happened that way. Those familiar with Freakonomics and SuperFreakonomics by Levitt and Dubner will know what I am talking about.
I recall my first day in a big lecture hall at University of Oregon attending Macroeconomics 101. I was a fresh faced kid eager to learn and ready to believe just about anything. When the professor said something like this: “Okay the fundamental assumption that we will make as economists is that people are rational and that they will behave in a rational manner,” it sounded fine to me at the time—perfectly reasonable. I hadn’t been around long enough to believe otherwise. It was only with the passing of years, after graduating from the university and going to work in the real world, that I began to question that assumption. And ultimately I concluded that it was downright ridiculous. My entire economics education was based on one fundamental and ridiculous idea. It would be as though we had utilized a chicken bone as the foundation for building a skyscraper. (Needless to say, I was not happy when considering the amount of money I had spent obtaining this degree.)
A very good read which speaks to the matter is Predictably Irrational, by Dan Ariely. The bad news, if you wish to draw conclusions from this book, is indeed that individuals often engage in irrational behavior. However, the good news and the saving grace–I should think–if you are trying to understand human behavior in the aggregate, is that we are as it turns out quite predictable in our irrational behavior.
Where was I then? Oh yes … my fundamental point is that I would rather not go too far down the road of attempting to predict the economic (or any other) future. I will only go so far as to say that I’d rather it not happen. But it is worth pointing out that a downturn such as that discussed may not be all bad for those who invest and traffic in private money loans. If banks aren’t lending as 1.3 trillion in loans come due and with private money lenders as the primary option, the pickings would be quite impressive indeed for those who choose to keep investing.
So what do others have to say? As per usual, there are a wide range of opinions. And they tend to be somewhat polarized. I myself tend to think that the doomsday people somewhat undermine themselves by being so certain and unrelenting, but at the same time, I am suspicious of anyone who says that things are looking good. I figure the later must work the national association of realtors or some such thing.
I guess we’ll each have to decide for ourselves, and so here is a sampling of web content regarding the matter.
From the Dallas Morning News
From the Business Insider
http://www.businessinsider.com/michael-panzner-commercial-real-estate-2009-11
From the National Real Estate Investor
http://nreionline.com/property/retail/foreclosure_in_doubt/
From the Real Estate Channel
From the Urban Land Institute
http://www.uli.org/ResearchAndPublications/EmergingTrends/Americas.aspx
Okay, there is plenty more where that came from, but I won’t burden you with it here; if you wish to read it, you’ll have no trouble finding it. I would be very interested, however, in hearing the views of those who follow this site. We are still quite small in number, but we have enough folks to fill a good sized classroom now, so by all means, raise your hand and be heard. Please: prognosticate.
— Clay (clay@privatemoneysource.com)
Glad that I came across your site . I look forward to learning more about you. 🙂 I work with a Land Auction company in Alabama. Check out my link. I am always looking to expand my network. Thanks again!