Accounting & Investing Info for San Antonio A & M
Bob Prechter takes look at the commercial real estate market.
I noticed four vacancies of six in the small strip center at the corner of 281 on the way to my house.
Once the mood changes, it takes a huge reversal for anyone to get the courage to lease again, we are nowhere near the bottom.
Tragically,
I agree with the statements in regard to Commercial R/E. Commercial R/E to non-major credit tenants is always a crapshoot at best. In these tougher times, small mom and pop stores just don’t have the horsepower to remain. During the good times (2003-2007), which were perpetuated on the continuing boom-bust cycles that are caused by continuous over-printing of currency, I saw way too many borrowers getting involved in commercial real estate under the belief that it was as easy as going to the mailbox to collect your check. Now those same folks are having to pony up cash to cover the debt service as guarantors and they were marginal guarantors to begin with.
For independpent banks and medium sized regional banks, this is a huge cause for concern as their loan portfolios are highly concentrated in commercial real estate. One should pay particular attention to those that have R/E Loans to Capital ratios of X>300% as they will feel the pinch first. More charge-offs are coming and Non-Performing Asset Ratios of even the strong banks will increase to ~10% (normally 4-5%). People need to ignore the media hype that the recession is now over and buckle their chin-straps. A recovery will come, but this will be a hockey stick graph recovery with a long baseline to still be experienced.
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I particularly like Austin’s second sentence. I worked for a major commercial developer in Houston in the 1970s. The small buildings as Austin says do not attract the major tenants, ditto for small strip shopping centers, I will start featuring some photos from around SA to make the point. It is hard to keep rentals above 85% in a small building as you have multiple tenants always moving in and out and wanting different sized space. Once the mood changes, it is near impossible to get any one to rent space until the collapse has exhausted itself. I suspect we are not to the hockey stick recovery yet, that we have another leg down first. Today the Dollar should be bottoming, stocks are finally showing weakness.
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Professor Elam 
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