Author: Warren K. Hoppke, SRPA - Principal of http://www.appraiservalues.com specializes in Los Angeles commercial and industrial real estate. He provides full real estate appraisal services throughout Southern California, including mortgage lender reports and detailed forensic appraisal reporting requirements for court testimony.
As Wall Street reels from major losses many cash starved Wall Street firms, financial institutions, and some insurance companies are scrambling for capital to shore up struggling balance sheets. Liquidation of real estate assets will be one of the first places firms will look for cash.
Prices are on the decline and many firms will soon be in the market hocking their commercial real estate in trade for cash. To top it off, unemployment has doubled over the past year and continues its upward spiral.
This double whammy will result in investors placing upward pressure on capitalization rates as vulture funds hover around looking for fire sales on commercial real estate. Unfortunately, one feeds on the other and as Wall Street layoffs start commercial office and industrial markets will be hit.
For example GE has been selling off its commercial real estate and many other cash strapped corporations and financial institutions will follow. Credit has contracted by almost 400 billion dollars. As credit contracts it has a multiplier effect. The multiplier effect can be 3 to 4 times the amount of the contraction. As Leman Bros. goes under approximately $150 billion of bonds will default.
As reported by AFX News Limited, besides banks and other financial institutions pension funds have been among the top investors in mortgage backed securities (MBS) and collateralized debt obligations (CDO). After years of channeling money into MBS and CDO portfolios of mortgages bundled and sold as debt securities the total size of pension fund securitizations are massive. Thomas Martin, president of the Homeowners Consumer Center estimates pension funds will take a 1 trillion dollar hit from devalued securities.
The nations largest public pension fund the California Public Employees Retirement System (CalPers) could take a hit as large as their $2 Billion dollar residential mortgage portfolio.
Has the Great World Wide Depression started ?