I saw this graph on a Sperry Van Ness conference call and meant to post it at that time. It’s eye candy and informative. Note that the REO part of the market looks smaller than the “restructured” part of the market, and only slightly larger than the “resolved” part of the market. The numbers on the y axis are billions.
I have no way of verifying the RCA data, but I have no reason to disbelieve it. Having said that, here’s an interesting thought. With all of the talk about the impact to systemic credit from CRE, if the total distressed CRE market is $250 billion, it’s an amount that is 1/5 or 1/6 the size of Bank of America, a single (though very large) bank.
If I’m way off on this, I would be interested to see the proof. I really don’t have a dog in this fight, I just keep hearing more and more smart people say that CRE won’t be the problem that some are claiming. If I’ve been misinformed, please let me know as I am more interested in the truth than being married to this small point.
Wow, this is nice eye candy!
Most real estate investors I communicate with are definitely worried about a wave of CRE defaults in 2010. This data looks promising, I've got some of our people digging in and seeing what we can come up with in support of it.
but banks dont hold reserves at a level anywhere near being able to deal with $250B without major issues. i dont think cre is going to implode (underlying fundamentals have a lot to do with that). what you will see is the areas were fundamentals were worst getting hit the worst. and people will have to sell for less than they paid even if the property "performs". the issue isnt a huge implosion, its the length of time that we will have these issues bouncing about. and i find RCA to be pretty good for info, but their universe generally stays above $5M or $10M for tracking purposes (good for institutions, not for local brokers, but great for market info)
oh, and the next problem is that since we well have this lowered valuations for what appears to be a number of years, that all the loans coming due in that time will automatically be potentially distressed.
I think you've hit an important issue. Because RCA only tracks deals over $5mm, they are missing the long tail of distress. A significant part of the distress will be in small deals under $5mm. So maybe you double the size of the $250 billion reported by RCA.
I've got some of our people digging in and seeing what we can come up with in support of it.
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