Heard on the street
I was talking with a friend this weekend that is a commercial banker. He related that he had recently had lunch with a couple of people in JP Morgan’s workout department.
The story goes that Morgan is giving thought to selling off their entire C&I portfolio to hedge funds to make way for the coming commercial real estate tsunami.
Would that be a manpower or a balance sheet driven decision?
Mark M, Thanks for posting this. It’s great to get a scoop from inside the belly of the beast. It stands to reason that if they are predicting a flood of commercial real estate failure, we are still in the opening rounds of a depression, and there is much much more to come.
There is still a segment of the real estate collapse they are keeping suppressed and that is the condo market. Condos (the condominium concept) is a fairly new, post depression concoction. The traditional real estate ownership method was tested by the fire of the depression and clear lines of demarcation between lender and owner were established and foreclosure proceeds down clear and historical paths. Condos, on the other hand, have not been tested by that same fire. There is an additional third party (the condo association) in the mix and there are no established boundaries. There is yet to be a lot of bloodletting in the condo market as associations go belly up from neither the condo owners nor the foreclosing institution paying condo fees. Their cash flows are being strained at the same time their market value drops like a rock. Fannie Mae and Freddie Mac guidelines have been changed to all but make the condo market a cash only market. The bottom line, any one segment of the real estate market will always affect the others. There is just a time lag.