Monday, December 22, 2008

Commercial Real Estate's Rotting Foundations

Here we go again! Yet another industry wants the government to guarantee its viability:

A group of trade associations representing the U.S. commercial real estate industry is lobbying to be included in the Federal Reserve's $200 billion asset-backed bailout plan in order to head off a wave of foreclosures over the next few years.


We can expect the hue and cry from commercial real estate companies to grow louder in Q109 as their rental income declines:

U.S. commercial properties at risk of default could triple if rental income on apartments, offices and retail buildings drops even five percent, according to New York-based real estate analysts at Reis Inc.


Is it worth it to play this by shorting insurers and REITs with commercial loan exposure? For me that answer is no, only because real estate isn't a specialty of mine. Investors with experience in evaluating commercial properties might find some worthwhile short candidates.