CRE

Hung Over on Debt

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American business appears to be hung over on a massive debt fest from before the financial crisis. Debt Overhang to be more specific. It's so bad, it's causing real investment which in turn generates real jobs for the real economy which generates real growth... to be muted. One problem, the declining values of assets, specifically commercial real estate.

Federal Reserve Bank of Cleveland researcher Filippo Occhino delves deep, complete with crayons, on how debt overhang is negatively impacting business investment.

The below video explains debt overhang in simple terms, real simple, must watch simple.

 

 

Turning to adult versions of crayons, here is Occhino's graph of assets to business debt. Notice the asset to debt ratio historic high. (To read las matemáticas version of the research, pdf here).

 

Here Comes CRE - Lastest COP report

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The latest report from the Congressional Oversight Panel is out and they are making no bones about another shoe to drop, Commercial Real Estate (the link goes to a post warning on CRE from last July). On their main page is this:

Nearly $1.4 trillion in commercial real estate loan debt will come due for refinancing in the next several years. The Panel's February report expresses concern that a wave of defaults and losses could jeopardize the stability of many banks and prolong an already painful recession.

Let's cut to the chase and say Congress and the Obama administration have blown off Commercial Real Estate generally. Here is COP's conclusion:

The Panel is concerned that until Treasury and bank supervisors take coordinated action to address forthrightly and transparently the state of the commercial real estate markets – and the potential impact that a breakdown in those markets could have on local communities, small businesses, and individuals – the financial crisis will not end.