The evidence of a second real estate crisis — this time, focused on the commercial sector — continues to pile up. According to the following Bloomberg story this morning, the next batch of banking sector earnings reports could be rather ugly …
“Synovus Financial Corp., Comerica Inc. and Huntington Bancshares Inc. are among regional banks that may face a second wave of real-estate loan losses, this time for shopping centers and residential construction projects.
“Losses in commercial real estate excluding construction are expected to increase tenfold, Deutsche Bank AG analyst Mike Mayo said in a Jan. 5 research note. Moody’s Investors Service said yesterday it’s considering a downgrade of Synovus because of commercial real estate losses.
“Borrowers have fallen behind on payments to regional lenders as the year-old recession shutters retail stores and offices.
“Overdue commercial real estate loans quadrupled from two years earlier in the third quarter to 4.73 percent, according to seasonally adjusted data from the Federal Reserve. That’s the highest level since 1994.
“We’re overbuilt in a lot of areas like shopping malls,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. Apartment developments are also suffering as falling home prices draw people away, he said. “The fundamentals are on the verge of going really, really negative for commercial,” McCain said.”
{ 4 comments… read them below or add one }
(not a comment but a question)
Displaying an inverse ETF chart and the corresponding long ETF you would expect pretty much a butterfly pattern (with a slight drop added because of fees). This actually is true for several combinations I have looked at. Put up however the double short ETF SRS versus several of its long counterpart ETFs like IYR, for recent months, and the Butterfly patters is heavily drawn down and both ETFs, long and short, are loosing. Can an expert explain that to me, please?
I would be most interested to understand the answer that Kristian requests. I am confounded by the recent tanking and subsequent resistance to the upside that SRS is experiencing these days when all the news in the RE sector is bad and getting worse. What are they invested in anyway?
I am also trying to understand the seemingly “resiliant” commercial RE sector as I too am dumbfounded by SRS’ recent performance. However, I continue to believe that patience will prove out the thesis that commercial real estate is in big trouble as refinancing current indebtedness does not appear likely due to asset values which are nearly halved at this point. Thus most properties, even those with what appeared to be conservatively leveraged debt over the last 3-7 years, will not be able to refinance out and the banking crisis will enter a new phase as these assets return to banks balance sheets…I know because I have 3 empty warehouses with a past due loan…no prospects to refinance (even though I have a good ltv, according to my bank’s own internal appraisal) and no buyers seemingly at any reasonable price!! If this is happening to me, it is happening to a lot of developers!!
With that said, I want to buy more SRS, but…..
SRS resets every night. A better way to trade could be to buy puts on SPG. They announce earnings on Friday. Or buy SRS on Thursday night… You have to be in and out of the double shorts like SRS or you could get killed. This is not a long term trade.