Property Grunt

Saturday, May 29, 2010

Low Hanging Fruit

The next wave is here.

It was after the first couple of months of the financial meltdown, that I began to receive emails from a site called Property Campaign. At first I blew these emails off as a spam, but then I discovered that these people were definitely legit. Which brings me to the commercial real estate bubble.

Greenspan: Commercial Real Estate Bubble Has Already Popped

Former Fed Chairman Alan Greenspan believe a bubble in commercial real estate has already popped. “Real estate prices generally are down 50%,” Greenspan told me in my exclusive “This Week” interview. “With prices already down and adjusted, if we were going to get severe secondary reactions, they would have occurred, and they would have occurred if it weren’t for the fact that the rest of the economy is showing some degree of buoyancy.”

I have to agree with him on this matter. Yeah. I know it is a first.

These ads alone below is enough evidence for me.

The American auto industry has been taken a beating since the financial meltdown, on an anecdotal level I recently met someone who got one of those deals of the century. He basically got an insane deal for a car and was only required to pay the principal in a very attractive monthly payment plan. Although the model he bought was quite recent, the dealership had to clear the decks for new inventory.

The rental car industry has been hit severely because revenue streams are reliant on the traveling/tourism industry. Besides the usual reasons why people would travel to Florida, the real estate bubble in that area was a huge boon for the rental car industry for speculators who needed to look at properties. Now everything has dried up.

You would think that a warehouse would be the last place that would get hammered by the economy but it has taken more than a fair share of its lumps. If you think about it, it makes perfect sense. If consumer spending is down, there is no reason for retailers to purchase stock, if there is no stock to be purchased, there is no need to store it any where. And if the economy is recovering, the owner of this property is going to get out while they still can.

This listing does not surprise me. As everyone knows the restaurant industry has been taken a severe beat down, so these particular investors are getting the hell out of dodge.

A common theme with these properties is Florida, so it is not surprising that investors in that state are in dire need of liquidating.

Condo development is completely out of vogue, especially in California. No surprises here.

I have also been getting a lot of ads for strip malls.

Blame consumer spending. The owners of this property are unsure of how sustainable their tenants will be in the near future, so why take a chance? Take the money and run.

These seem like good tenants, in fact one could argue they qualify as anchors. But their viability depends on consumer spending which is on very shaky ground.

Now this is where things start to get out of whack.

Now mind you, this is the first ad for medical space I have seen, but it concerns me because medical office space is considered to be bullet proof. In fact if I had a ton of cash, I would dump it into this market. However, it is understandable why people are on edge about medical space due to the Obama Healthcare plan.

Now here's where it gets s**tastic.

I got a bunch of these types of ads for properties for sale. What concerned me is that these tenants are ideal for any commercial landlord and what makes them more valuable is that they are near a Wal Mart.

From what I have been told the real estate model for Wal-marts is they find a location, build it and then bundle it up with other super centers and sell it to a syndicate.

I find it quite disconcerting that someone wants to unload a Wal-mart because those stores are annuities. Hell, they are blue chips in the real estate world. As far as I am concerned there is nothing safer. But here we are.

Is this a great time to invest in commercial real estate? Absolutely. But there is a lot of low hanging fruit out there and you better be someone who has a lot of liquidity and an excellent track record for not getting in over your heard.

Unless you have plans for development or have a tenant ready to go, it would be prudent to exercise extreme caution in properties that are associated with restaurants, cars, California and Florida.

Don't be afraid to low ball. You are taking just as much risk as everyone else is.

Happy Hunting.