Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Who Knows What Will Black Gold Do in Coming Week? - 18th Dec 17
Gold’s Shooting Star and Its Implications - 18th Dec 17
UK Used Car Christmas From Dealers Buying Discount Sales Bargains - 18th Dec 17
How To Play The 2018 Cannabis Boom - 18th Dec 17
Should You Consider Investing/ Buying Gold or Bitcoin? - 18th Dec 17
Gold EFPs: Absolute Proof that the Paper Gold Price is a Fraud - 18th Dec 17
Gold – Technical Obfuscation, Fundamentals, Predictions - 18th Dec 17
Stock Market Final Thrust is Likely - 17th Dec 17
Never Mind Tea Leaves, Here’s a Strong Signal from the Economic Dashboard - 17th Dec 17
As Bitcoin Breaks All-Time Highs Near $18,000 Its Future Has Never Been So Uncertain - 17th Dec 17
Best Time / Month to Buy a Used Car From a UK Dealer - 16th Dec 17
Relief Rally in Gold Mining Stocks - 16th Dec 17
Amid Bad Fundamentals, Gold Sector Rally May Have Begun - 16th Dec 17
Gold Bullish on US Fed Interest Rate Hike - 16th Dec 17
The LORAX Explains What Happened to Sheffield's Street Trees 2017 - 16th Dec 17
Bitcoin Trading Alert: Bitcoin Pauses – Will Appreciation Follow? - 16th Dec 17
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

Why US Commercial Real Estate Is the Next ‘’Big Short’’

Housing-Market / US Housing Apr 03, 2017 - 01:20 PM GMT

By: STRATFOR

Housing-Market

A small but growing group of hedge funds are positioning themselves to profit from the collapse of the real estate market. Sounds like 2007, right? It’s actually happening right now.

But this time, hedge funds (along with Deutsche Bank and Morgan Stanley) aren’t targeting subprime mortgages—they’re going after commercial real estate.

It’s no secret retailers and malls have been struggling for years, but it looks like the perfect storm is set to hit them in 2017.


Commercial Catastrophe

Bearish bets against commercial loans jumped 50% year-over-year in February—and with problems piling up for malls, it’s no wonder.

Around $3.5 billion in retail loans were liquidated in 2016. Investment firm Gapstow Capital said losses on mall loans have been “meaningfully higher than in other areas.”

This is because malls are reliant on retailers like Macy’s, J.C. Penny and Sears. Unfortunately for these landlords, their tenants’ businesses are failing, which brings us to…

Chart #1: Department Store Sales Have Collapsed


Source: Bank of America

As a result of falling sales, retailers are shutting up shop at a rate that has not been seen since the 2008 financial crisis.

Chart #2: Store Closings in 2016 Were the Highest Since 2008


Source: Credit Suisse

…and they plan to close hundreds more over the coming years, which is very bad news for malls.

Most malls are dependent on one or more of these big retailers. When anchor stores close, it reduces foot traffic, and that hurts other retailers. This begins a cycle of blight, leading other tenants to leave.

Alder Hill (a hedge fund started by associates of billionaire David Tepper) is bearish on commercial loans and expects 2017 to be a “tipping point.” Morningstar Credit Ratings estimates roughly 40% of the loans due this year won’t be paid.

This comes at a bad time for the industry. Commercial real estate prices have been on a tear since 2009, but with vacancies rising, prices have stagnated.

Chart #3: Commercial Property Prices Have Topped Out


Source: Green Street

This, coupled with new rules that came into effect in December (which force banks to hold at least 5% of the loans they make on their books), has caused loan growth to stall.

As a result, leading retail analyst Jan Rogers Kniffen expects around one-third of American malls to close in the coming years. So, what are the implications of this commercial collapse?

Investment Implications

The majority of holders of commercial debt are savings institutions like pension funds and insurance firms. Herein lies the real crux of this problem. When a mall starts to falter, the end result is usually big losses for lenders. This happened recently when Hudson Valley Mall was liquidated and investors lost $42 million.

If pension funds and insurance firms are forced to write down billions in bad loans, it will likely create huge uncertainty in markets. During uncertain times, it’s important for investors to have a predefined investment strategy so they can avoid getting caught up in the high emotion of markets. In our free report, 3 Proven Strategies to Invest in Uncertain Markets Like These, we detail three strategies you can use to invest during such times.

Getting into specifics, investors would be prudent to avoid retail real estate investment trusts (REITs) if we see a commercial collapse. As the chart below shows, retail REITs dragged the overall sectors’ performance in 2016.

This trend has continued into 2017. The largest retail REIT, Simon Property Group, is down over 9% since January. At the same time the largest healthcare REIT, Welltower, is up over 4%.

George Soros once said that you make large amounts of money by finding a popularly held public precept that’s wrong and betting against it. Major players in The Big Short like Michael Burry and Steve Eisman gave us the perfect example of this in 2008 when they made billions from betting against the real estate market.

We might be in the early innings of a commercial collapse, but given the prevailing trends, it looks inevitable.

Become the Best-Informed Investor You Know

The world is more interconnected than ever before. Only those investors who understand how current world events are linked can prepare for what’s going to happen. Sign up for Mauldin Economics’ free weekly newsletters for a bird’s-eye view of macroeconomic reality.

David Galland

David Galland
Managing Editor, The Passing Parade

http://www.garretgalland.com

Garret/Galland Research provides private investors and financial service professionals with original research on compelling investments uncovered by our team. Sign up for one or both of our free weekly e-letters. The Passing Parade offers fast-paced, entertaining, and always interesting observations on the global economy, markets, and more. Sign up now… it’s free!

© 2017 David Galland - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife