Posted by Jon on November 02, 2009 at 15:29:42:
In Reply to: Re: posted by ray@lcorn on October 30, 2009 at 18:08:41:
Thanks as always for your response. I completely agree that there is always opportunity for those whose skin is not yet in the game to try to drive prices down further, and their history gives them a large pulpit to do so. I think however that they are seeing truly fundamental issues that could create a crash, even if the long term value of the property is well above the current market prices.
This makes me recall the John Maynard Keynes quote, "The market can remain irrational for longer than you can remain solvent." As you said, the reform necessary to restore confidence and ultimate price stability is going to be painfully long in the making. Even assuming some degree of price stability on a fundamental level, you will undoubtedly see downward pressure simply from the remarkably smaller pool of capital willing to finance (or more importatnly, refinance) the shorter term debts on these properties.
I just see the cascade being inevitable, as the weak hands will be shaken out, exacerbating their pressures on the even relatively stronger hands. Something is only worth X dollars because the market says it is, and unlike the residential market, long term fixed debt is almost non-existent, so refinancing is going to have to take place, at increasingly lower rates. Commercial real estate, unlike residential, has no intrinsic value in what it offers the owner, aside from the cashflow or appreciation, making strategic default all the more compelling.
I understand the intuition behind the deep value presented relative to replacement cost, but without demand, this seems rather meaningless, placing a huge emphasis, like you said, on research and demographics. I would think someone like you would love the opportunity to have far fewer adversaries competing over the compelling deals. The truth is only time will tell, but time could wind up being the greatest headwind in a niche that often uses time as an asset.
JOn
- Re: Casey Cavell 19:44:47 11/02/09 (0)