Commercial Real Estate Blog

The lender that was honored as “Lender of the Year” for 2006 just two short years ago has now seen itself get sold to Citigroup for next to nothing. Wachovia, who held the position as the largest commercial lender and servicer in 2006 is now gone. Wachovia generated in excess of $60B in commercial mortgages in 2006, and serviced nearly $180B in mortgages and CMBS that same year.

We are really in the midst of something historic here, as a huge consolidation of power and wealth is happening right under our noses, and we are paying for it. If you’re familiar with the Panic of 1907, you will see that history is suspiciously repeating itself, and if there is a lesson to be learned, it is that JP Morgan Chase Bear Stearns Washington Mutual will definitely survive, and that Bank of America Countrywide Merrill Lynch US Trust LaSalle, Barclays Lehman Brothers, and Citigroup Wachovia will likely be right there too.

Though it seems a final deal has yet to be finalized, it seems JP Morgan Chase will be suitor for Washington Mutual, or at least a portion of its operation according to multiple reports. Washington Mutual put itself up for auction last week, and a number of banks came forth to evaluate it, including Citigroup, HSBC, and JP Morgan Chase.

Washington Mutual, despite being mired in bad debt and writedowns still is a bank with a strong and well-located branch network. It was clear that to anybody looking to “head west” and establish themselves in key markets like California, Washington Mutual would be a likely target. What exactly Chase will be acquiring will remain to be seem, but it is very likely that the retail branch network, at least in key west coast markets, will be a part of that deal.

In commercial real estate, the best buildings tend to maintain the highest levels of occupancy, even in a downturn. As the market softens, tenants try to take advantage by moving into better buildings.

I suspect what we’re seeing right now in banking will be similar to what happens in commercial real estate. As the media continues to put a spotlight on troubled financial institutions, depositors in those banks are very likely to withdraw their funds and seek a safe-haven. That safe haven is likely to be this country’s largest banks, such as Bank of America, Chase, Citibank, and Wells Fargo. Bank of America alone, for instance, holds about 8-10% of this nation’s deposits.

A conspiracy is nothing but a secret agreement of a number of men for the pursuance of policies which they dare not admit in public.” - Mark Twain

Normally I don’t get to engrossed in conspiracy theories and the such, but what is happening with oil and the financials and the dollar is becoming so gross that it is difficult to ignore. We talk about here the impact, whether directly or indirectly, all these forces have on the commercial real estate market and the general situation we find ourselves in today, but I felt compelled to write a post about what I believe is happening with the economy, financials, and the bailout underway at the hands of the populace.

First, a graph showing the Dow Jones Financial Services Index vs an ETF tracking the price of crude oil since the credit freeze began in earnest last summer (click for full-size).

I am of the camp that is fascinated by Wall Street. The ability with which Wall Street has managed to screw up, only to find a creative solution to the problem has been one which amazes me. They’ve managed to do this time and time again. This time, it goes without saying, they’ve managed to dig a giant hole. One where losses are into the hundreds of billions, with some estimates pegging total losses to be at over a TRILLION dollars when this is all said and done. That’s a lot of cheddar.

It seems Wall Street has again found a cure. Over the past few years, we’ve started to hear the term Sovereign Wealth Funds (SWF). These are funds which are state-owned investing in assets, projects, and securities worldwide. Over the past year, since the credit meltdown hit Wall Street, SWF have been running around Wall Street investing in everything from Citigroup, Morgan Stanley, Merrill Lynch, and real estate as well to the tune of billions and billions of dollars.

The SWF of Kuwait, UAE, and Saudi Arabia seem to me to be working in concert with the investment banks to bail them out. The same investment banks who are blaimed for “speculating” the oil price to where it is right now are benefitting from huge cash infusions from the very same SWF benefitting from high oil prices.

Thus it is easy to see that Wall Street has once again managed to find a cure by getting the public to bail them out at the gas pump. The investment banks drive the price of crude up (and thus gas prices). The money flows into the oil producing countries and their sovereign wealth funds, which in turn reinvest the premium the investment banks created for them back into our financial institutions, with all of this financed by the public without having to mess with a tax increase or a congressional bailout replete with lobbying, hearings, public scrutiny or outcry. Absolutely Genius.