No Bailouts for Commercial Real Estate

I heard this news from Diana Olick on CNBC and read the Reuters article about it on forexpros.com -- MIT's Center for Real Estate says commercial real estate prices fell 10% in the fourth quarter of 2008, according to an index they track of sales by institutional investors. But we know real estate is crummy without benefit of indices.

And we know why. Real estate people are always bullish. They never ask whether the office park or regional mall they are building on marginal sites miles from anywhere or right next to existing space that is 80% let is a good idea. If they have money to build, they build. When money was free, developers built mindlessly and sprawl became more than ever a blot on the American landscape, with results you can see. Now financial companies that are retrenching don't need office space, and Circuit City and Linens & Things are two of the chains whose space is going begging.

So real estate people are going begging for their piece of government pork.

This must be resisted.

We think rules for bail-outs have to limit them to industries the failure of which will cause systemic failure for the economy overall, or that employ huge numbers.

Commercial real estate industry does not qualify on either count. If commercial real estate employs half a million people directly, that would be a lot. And if the worst that happens is that the commercial mortgages of loser developers with marginal properties go bad, then that is going to be among the least of the hits the economy takes in the course of this financial crisis. It will not be Armageddon. Lenders will take a haircut; get in line with everyone else. Some viable properties will be taken over and operated by lenders, who are insitutional investors with real estate that they own. Some will be sold on to new investors at low prices that give them an opportunity to profit.

Some may be converted to alternative use, in the same way that a lot of surplus industrial space in Newark and Paterson is used for churches and mosques.

Some, let's face it, can just be abandoned, monuments to greed and stupidity in a bygone era of American economic history.