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Thread: Malls, hotels next victims in new mortgage crisis

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    Elite Member celeb_2006's Avatar
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    Default Malls, hotels next victims in new mortgage crisis

    (Yup folks, it ain't even close to being over yet, happy holidays!)

    Malls, hotels next victims in new mortgage crisis - Yahoo! News

    WASHINGTON The full scope of the housing meltdown isn't clear and already there are ominous signs of a new crisis one that could turn out the lights on malls, hotels and storefronts nationwide.
    Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.
    Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.
    That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.
    "We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.
    That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.
    Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.
    But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.
    "It's a toxic drug and nobody knows how bad it's going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.
    Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.
    The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.
    Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year 2010 and 2011 totals are projected to be even higher many property owners won't have the money.
    Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.
    Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.
    California, New York, Texas and Florida states with a high concentration of mortgages in the securities market, according to Fitch are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.
    The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.
    "Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything."

    That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.
    "The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.
    One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.
    "He's created havoc in the marketplace by changing the rules," Rosen said. "It was the stupidest statement on Earth."
    The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don't have to declare huge losses whenever the market declines. But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, "There's going to be a lot of pain going forward."

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    Elite Member Grimmlok's Avatar
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    thats what happens when your economy bases itself on thin air.
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    Elite Member kingcap72's Avatar
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    Maybe it's time to use some of that $700 billion that Congress shelled out to shore up some of these homes and businesses. Oh wait. Bush and his cronies will pocket that cash.

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    The more things change...the more they stay the same.

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    Friend of Gossip Rocks! buttmunch's Avatar
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    Bush and his cronies will never bail out anyone who really needs it and yes, this is partly the result of our economy changing from a manufacturing base to a service oriented base.
    'Those who sacrifice liberty for security deserve neither.' Ben Franklin

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    Elite Member McJag's Avatar
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    I don't see how any mall around here is going out of business. I had to just pass by one yesterday-OMG! There were cops directing and cars parked way out to the outer lines everywhere. I just shuddered.
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    Elite Member nana55's Avatar
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    Well there are "For lease" signs on a lot of our big malls and strip malls. San Diego, like many other places, is being hit hard. The small strip malls will be hit the hardest and hit first. If the big malls lose their anchors like Sears and Home Depot etc. it will spell doom for the rest of the mall. What a ride
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    Friend of Gossip Rocks! buttmunch's Avatar
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    The thing is there might be a lot of people at the mall but how much are they buying? And what are they buying? Even here in Oz I was *shudder* at the mall today to pick up a few things for the heathens and although it was fairly packed nobody was carrying much and the stores that were having huge sales had the most people. And Oz is in pretty good shape, all things considered.
    'Those who sacrifice liberty for security deserve neither.' Ben Franklin

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    Elite Member Mariesoleil's Avatar
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    I worked in the adminstration office of a major shopping centre for the last 3 years. Last year was already a bad year for retail. Quite a few bankruptcies.

    Quote Originally Posted by nana55 View Post
    Well there are "For lease" signs on a lot of our big malls and strip malls. San Diego, like many other places, is being hit hard. The small strip malls will be hit the hardest and hit first. If the big malls lose their anchors like Sears and Home Depot etc. it will spell doom for the rest of the mall. What a ride
    Especially if you take into account the fact that many of the other stores have clauses in their lease stating that if an anchor closes they have the right to terminate their lease. If you lose a major anchor (unless you can find a replacement quickly) than other stores in the centre automatically start closing.
    "Books are the quietest and most constant of friends; they are the most accessible and wisest of counsellors, and the most patient of teachers."

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    Elite Member Mariesoleil's Avatar
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    Quote Originally Posted by McJag View Post
    I don't see how any mall around here is going out of business. I had to just pass by one yesterday-OMG! There were cops directing and cars parked way out to the outer lines everywhere. I just shuddered.
    That could happen anyway. Even though the malls in your area is doing well normally you have stores that are nation wide in them right? Well if these nationwide stores go bankrupt the stores of the entire chain get closed down. Therefore the Centre gets one less rent payment and if quite a few close then the Centre ends up in trouble.

    Shopping Centre are extremely expensive to maintain. There are many, many bills to be paid. Heating/conditioning, gaz, maintenance, cleaning, security, water bill, garbage tax, city taxes, school taxes and so on...

    These costs are usually redistributed to tenants (they're called CAMs which stands for Common Area Maintenance). But when tenant's stop paying their rent or go bankrupt you start losing alot of money.
    "Books are the quietest and most constant of friends; they are the most accessible and wisest of counsellors, and the most patient of teachers."

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    Friend of Gossip Rocks! buttmunch's Avatar
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    YOu have to remember, though, that McJag is single handedly keeping the mall in business. That girl can shop like a whirling dervish. I've read about it on a bathroom wall.
    'Those who sacrifice liberty for security deserve neither.' Ben Franklin

    "When fascism comes to America, it will be wrapped in the flag and carrying the cross."
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