A provocative title always attracts attention!!!
As the posted article mentions, our country seems to be in the eye of the economic hurricane. Of course, the eye of a hurricane is temporary and means you will soon feel the full fury of the storm. At least this is what my friends and family (none of whom possess meteorological training) tell me. Plus, that helps illuminate my point so I am sticking with it!!
I spent some time in my pre-DBU life in the commercial real estate world. I also have many friends in the industry. It is not for the faint of heart. Additionally, the M.O. for real estate investors typically follows the Smalera's explanation to the letter. Investors acquire or develop property with maximized leverage on short term (5 year) note. Eventually, they will re-finance and take cash out of the deal which means they will be 100% levered with a bank account full of tax-free cash.
As Smalera points out, this is a great plan as long as properties continue to appreciate in value and cash flow exists to service the debt. However, what happens when tenants leave and values plunge? Who do you trust, the Flowrider or the federal government?? The author chooses the latter.
http://www.thebigmoney.com/articles/judgments/2009/04/24/next-financial-explosion?page=0,0
Interesting article!
ReplyDeleteI'd rather keep my money, since I didn't invest in the commercial real estate. Let's privatize both the profits and the losses, and get the market confidence back!