I've been talking about this since last year. The next big bomb to drop is going to be commercial real estate and it has the possibility to make the residential fallout look like a day at the park. All the companies going out of business and not renewing leases at office complexes in addition to solid companies not being able to refinance is going to create all kinds of issues.

The well is drying up. Despite our government shenanigans with bailouts, tax credits, and cooking the books, we are now seeing a forced mark-to-market accountability, beginning in a top-to-bottom fashion. The 1st tower needs to be foreclosed upon, and auctioned at its "real world" value. Darwinian principles do rule.

OK please explain to me why a BANK, a BANK used outside financing for a tower that would be their HQ?!?!?!

People have been talking about the commercial bubble for more than the last year. I remember seeing articles in WSJ nearly 3 years ago--so what we are seeing is nothing new or unexpected.

Many large lenders have already written down their book. GS, for example, has written off nearly 50%; while many regionals might find themselves worse off.

Be careful about overstating the case or trying to play the role of siren when most major financial publications have been talking about it for years and we've already witnessed the largest CR bankruptcy that will happen (GGP--unless you think Simon is going under).

With CR there is a broad spectrum. Many developers tend to have a local focus and particular business model (e.g. hotels, strip malls, etc....) so be wary of painting with too broad a brush. As always, careful thinking is better than wild speculation.

You would think that someone with a networth as high as Eddie Hale's that you would have 20 million in savings personally.

But even if someone like Eddie Hale did have 20 million laying around, why would he be stupid enough to invest it in realestate? I don't think you make that much money by literally throwing your money away, ergo why I am sure Pat Hiban doesn't have 20 million laying around...lol

they issue is beyond CMBS and multi-tenant properties. The inability to refinance is falling on owners of single sites. The gas-c-store industry is an example. Jobbers and investors have multiple properties where they have a tenant leasing the facility and the owner makes additional income from supplying the fuel. The total volume of fuel has dropped. The reality in many instances is that the credit card processor is making more money from the transaction to fill the tank than the actual retailer. Tobacco taxes have increased. Overall sales at the stores have decreased. The single properties are now in default and non performing. A flood of properties are going to be coming on to the market.

See other articles where PERFORMING loans can not be refinanced because the bank cuts 20% off the value of the asset even though the rents are in place and stable. Add on top of this that the bank NOW requires 60 / 40 leverage on a note that USED to be 80/20. Owner has to come up with what effectively is 40% more equity that the previous loan. Viscious cycle.

Viscious cycle? I think it sounds just peachy!

The "no little skin in the game" fiasco must end. Borrowers must enter not just with their skin, but vital organs (especially the heart) as well!

Darwin: I dig. Returns in CRE are compressed and senior debt/mezz/sub-debt do not have the risk profile to justify the lower returns and decreased collateral values. The media has led Americans to believe that it is a bank or other funding source's fiduciary and civic "responsibility" to provide funding for projects (whether commercial/residential/consumer,etc.) that are no longer financially viable. No single entity is wholly responsible for the mess, and no single entity is going to bear the brunt of its consequences.

Paul, there are a couple of reasons for your question:

1.) Different business models - Hale runs a bank, but is also a real estate developer. This is central to Mariner's problems...back to the other point, they also have very different RISK and ASSET/LIABILITY DURATION profiles.

2.) Core competencies - Many companies, including banks, do not prefer to be real estate owners. Hale compartmentalized his investments, including those in his bank and in his real estate projects. (A book can be written on the way the two operations are interrelated....and why, including today's news of their sale of the consumer finance division, are selling off assets like Michael Jackson in 2006 (too soon?).

3.) Pricing - diversifying the capital stack and using non-senior-debt funding sources, such as this French entity, provided incredibly low cost of capital. This is a perfect example of making an investment decision largely based on financing - a practice that should be avoided at all costs.

4.) All parties, including the numerous financiers, likely looked @ the Canton Crossing deal with Mariner as a "medium-quality" tenant and nothing more. Because the project was, for lack of a better phrase, a clear example of "Baltimore Incest", many people have confused the principal operator of the real estate investment company (Hale), with the CEO of the bank (Hale). Same guy, very different investment profiles...at least that's the way it should work.

Hiban- no way he has even 1/5 of that liquid with his helicopter-from-the-eastern-shore lifestyle.

Randall, the reason for refinancing problems goes beyond bank's appetites (or lack thereof) for "loan to value". The cap rates that were initially used to underwrite and provide valuation on those properties was way out of wack and no longer applies. In other words, an example property was initially valued on a multi-year discounted basis based on the capitalization of the current and future potential rents and net operating income. Those cap rates are now miles off for retail, office, hotel, resort, and just about every asset class.

Many banks (like many Americans) are taking an ostrich approach to the problem and burying their respective heads in the sand. Big problems out there, and they are not all currently visible (especially with heads in sand).