So, let’s talk econ…

Extend & Pretend Coming to an End

Go read, then come back. Good times.

Lots of info in there, but let me tell you. I own a real estate company. I have for almost ten years now, and while I mostly deal residential and the Florida condo market, I can echo the bullet points in the article above verbatim. Here’s why:

In a recent interview with The Casey Report Miller details a dramatic turn for the worse in the commercial real estate market he has witnessed in the last few months. His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the “extend and pretend” plan was implemented by the governing powers. The distressed market dried up completely until November 2011. Miller describes what happened next:

“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we’re now seeing some really big-ticket properties with major loans on them that have gone into distress, and they’re all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, “Let’s do a two- or three-year workout with these guys. I’m sure by 2012 this market is going to get a lot better.” Well, 2012 is here now, and guess what? It’s not any better. In fact I would argue that it’s still deteriorating.”

Why the sudden surge in distressed properties coming to market in late 2011? It seems the FASB finally decided to grow a pair of balls after being neutered by Bernanke and Geithner in 2009 regarding mark to market accounting. They issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011called Clarifications to Accounting for Troubled Debt Restructurings by Creditors. Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market. Andy Miller understands this is the beginning of the end for “extend and pretend”

Remember when they said, “Hey, move that date out cause by then, the market will have gotten better…”?

Well, here we are and it hasn’t. In fact, the fundamentals have not changed since 2008. The amount of debt in the system has not cleared and we are again at the precipice of the cliff. One has to wonder when we will actually make a move.

I have personally been waiting for such an event for over four years now, saying constantly, that “something has indeed got to give”, yet here we are.

This is a badness thing.