The next bailout: Developers
posted at 11:35 am on December 22, 2008 by Ed Morrissey
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The makers of the federal bailout trough appears to have taken a page from the movie Field of Dreams: “If you build it, they will come.” The next interest group bellying up to the trough: real-estate developers. They want subsidies to protect them from the effects of a global recession, just the same as banks, automakers, credit-card companies, and the cast of thousands (via Instapundit):
With a record amount of commercial real-estate debt coming due, some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance.
They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.
Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower’s inability to refinance could force it to give up the property to the lender.
A recent letter sent to Treasury Secretary Henry Paulson, and signed by a dozen real-estate trade groups, painted a bleak scenario: “Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans,” said the letter. “For many borrowers, [credit] simply is not available,” the letter noted.
Had Paulson and the White House stuck with the original TARP plan — the one authorized by Congress — they would have bought back the mortgage-backed securities that the government mandated from the bad loans purchased by Fannie Mae and Freddie Mac. The credit markets would have eventually stabilized and the credit would have been forthcoming. Instead, Paulson and Bush decided to convert TARP into a political support system, picking winners and losers among ailing entities for no better purpose than to shore up voter support.
But hey, as long as we’re mortgaging our great-grandchildren’s future, why not add another failing industry to the list of nationalized markets? After all, they’re Too Big To FailTM, and we keep getting assured that this isn’t real money anyway. They’ll pay us back when they’re healthy, we keep hearing.
As long as it’s not real money, why not just bail everyone out? Pay off all our mortgages and credit cards, and have everyone start at zero again. Eventually, we’ll all pay it back … right?
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I’m still waiting for my retroactive technology industry bailout to protect us from the effects of the dot-com recession back in 2001. The startup I worked for shouldn’t have been allowed to go out of business, dag-nabbit!!
crazy_legs on December 22, 2008 at 11:40 AM
Let’s bail out Hollywood, universities, pet stores, casinos, buggy whip makers, & widget manufacturers, too!
jgapinoy on December 22, 2008 at 11:41 AM
Reminds me of a joke (I think it’s Jeff Foxworthy). The repo guy is there to pick up his car, and says basically can you pay me anything? Cash? Credit Card? Check?
He replies “Check? Yeah, I can write you a check. Hey, why don’t I just pay the whole thing off. Here you go!”
That’s the mentality we’re dealing with here. Our national treasury is writing checks without making sure the funds are “in the bank,” and without caring where the money goes as long as no jobs are lost and no one gets “hurt.”
cs89 on December 22, 2008 at 11:46 AM
Yeah, that’s Foxwrothy.
BadgerHawk on December 22, 2008 at 11:49 AM
And did the KO thread dissapear from top picks?
BadgerHawk on December 22, 2008 at 11:50 AM
What’s next? Are we going to see TARP money going to billionaires and millionaires that lost money with Madoff? We have lost our minds.
David in ATL on December 22, 2008 at 11:50 AM
I want a general purpose bailout.
Kini on December 22, 2008 at 11:50 AM
I agree Ed. That’s all this has become. It’s disgusting.
Hey-I’m waiting for the ranching industry bailout (not to be confused with the farming industry bailout-we are NOT the same thing).
Where’s my share?
Badger40 on December 22, 2008 at 11:50 AM
This entire country and its government are beginning to resemble the “Wizard of Oz”. The powerful “Oz” was in fact nothing more than a weak little man with a loudspeaker cringing behind a facade. What ever happened to the once great and powerful nation I was raised in . . . I think it has gone the way of the Wizard.
rplat on December 22, 2008 at 11:52 AM
wise_man on December 22, 2008 at 11:55 AM
“This entire country and its government are beginning to resemble the “Wizard of Oz”. The powerful “Oz” was in fact nothing more than a weak little man with a loudspeaker cringing behind a facade. What ever happened to the once great and powerful nation I was raised in . . . I think it has gone the way of the Wizard.”
This would be funny if not true.
FugginBastid on December 22, 2008 at 11:55 AM
Oh, this will be just peachy once Obama gets in office. While he was an Illinois State Senator, Obama funneled hundreds of millions of State taxpayer dollars to Rezko and other cronies to build low-income tenements, which fell into rat-infested disrepair, according to a Boston Globe article. Obama will have the chance to repeat this on a national scale, while packing the Supreme Court with judges who will repeat the Kelo decision, throwing people out of their homes for developments to be later bailed out by the Government.
Gird your loins…
Steve Z on December 22, 2008 at 11:58 AM
I’m sorry, but you’re wrong here. The only way the plan to buy toxic paper would have worked would be to overpay for the assets. The market value of the assets is practically nothing, so if they had paid market price, the banks would have taken huge losses and become insolvent
I guess Paulson realized 700billion wasnt enough to overpay for all the toxic paper out there, so he just gave them some capital in the hopes of kicking the can down the road to Obama.
lodge on December 22, 2008 at 11:59 AM
Oh this is just crap!
Why, WHY!?!?! Start to help one, and you have to help them all. This isn’t going to fly and people are getting mad.
upinak on December 22, 2008 at 12:01 PM
The next bailout: Developers
Man, when I read that, I thought my ship had come in.
Software developers, bailed out. No more Vista for me!
Then I read it.
“goes back to work”
pxystick on December 22, 2008 at 12:03 PM
I’m guessing that would be cheaper in the long run.
DannoJyd on December 22, 2008 at 12:04 PM
Here in Vegas we have thousands of unoccupied new construction and now we have office developments that are shutdown in the middle of building because our local government let these d-bags build without having all of their funding in-place.
So, these goofs now want the government to bail them out. Why? So they can complete these office buildings and add more empty houses that nobody wants?
This is insane and yet I fear Obama is going to hook these guys up and give them their money.
grdred944 on December 22, 2008 at 12:05 PM
Wait, not until my kids have built up a sizable college tuition debt.
FireBlogger on December 22, 2008 at 12:07 PM
Zimbabwe started to pick winners and losers too.
unseen on December 22, 2008 at 12:09 PM
Let’s bail out Hollywood, universities, pet stores, casinos, buggy whip makers, & widget manufacturers, too!
jgapinoy on December 22, 2008 at 11:41 AM
The first bail out passed. Holly Wierd was given a chunk of money. In other words, Pork! Was first thing out of Biotch Pelosi’s mouth.
sheebe on December 22, 2008 at 12:09 PM
Please,please,please bailout us real estate developers..
I don’t know if many people are aware of this but commercial real estate sales have dropped 70% this last quarter.
Liquidity is freezing up in a big way and banks won’t refinance perfectly good properties.
The corrupt international bankers cartel is intentionally drying up liquidity and not lending money, in an effort to buy up assets cheap.
They are criminals and belong in prison.
SaintOlaf on December 22, 2008 at 12:11 PM
If you’re a banker, why would you lend money in this environment? If I’m running a bank and the govt wants to give me free money, I’ll take it, but I’m not gonna lend it out to Joe Bloggs who is gonna lose his job next week
lodge on December 22, 2008 at 12:12 PM
So these pimps come in rape our land with empty, hideous looking strip malls and get a hand out too!!
F**k those assh()les.
mylegsareswollen on December 22, 2008 at 12:14 PM
Could I have a bailout too?
OneGyT on December 22, 2008 at 12:15 PM
SaintOlaf on December 22, 2008 at 12:11 PM
Not arguing with you on this. I pick up deposits for Chicago Title, and ReMax here in Ca. The amounts are huge! So, looks like some real estate is selling. Houses are selling, but it is a long wait for some of the sellers. It might start to slow down. In less than one month, between both companies, it was quite a few million. Since I get the slips and put them in envelopes for them.
sheebe on December 22, 2008 at 12:16 PM
this is past the point of stopping it.
The government no longer represents the people of the country. The government represents itself and the money people who prop up the criminals in Congress.
notagool on December 22, 2008 at 12:18 PM
Hey,
I kinda’ like the idea of gov’t putting money into the private sector… It’s a whole lot better than taxing it out.
Where am I wrong?
franksalterego on December 22, 2008 at 12:20 PM
Where am I wrong?
franksalterego on December 22, 2008 at 12:20 PM
hmm where do you thing they get the money in the first place?
unseen on December 22, 2008 at 12:22 PM
franksaltereg
your kidding, right?
Goody2Shoes on December 22, 2008 at 12:25 PM
Because Obama is going to be the next president, this comment may be true. But at least we dodged the bullet by not electing that evil Juan McTraitor. Har Har Har!
wise_man on December 22, 2008 at 12:26 PM
I practice creditor’s rights law and represent a number of lending institutions in workouts, bankruptcies, and foreclosures involving both commercial and residential real estate developers. Allow me to share a few observations:
1. A major difference between commercial lending and retail (i.e. consumer) lending is that the banks keep their commercial paper. Thus, theoretically, the commercial lenders should have been interested in maximizing the performance of their own loan portfolios.
2. Developers are difficult debtors for me to deal with. Most of my clients’ small business customers are easy. They come in, they say “my business is failing,” and we work together to liquidate or restructure their business while preserving the small businessman’s dignity and personal financial condition to the extent possible.
Developers, by contrast, are much more aggressive. They threaten to sue the bank (and sometimes do), they file frivolous pleadings to delay the process, and generally speaking cause trouble. Their only business plan? “Let’s hope the market picks up so we can finish the project!”
There are a lot of developers who had very audacious plans back in 2002-2006 for building commercial properties, neighborhoods, etc. The market tanked, and their model failed. Their land is now not worth so much and they have no cash flow to service the debt. The smartest thing for them to do is just to let the properties go into foreclosure so someone else can have a go at it. If they play nice, the banks usually will let them out of their personal obligations on the debt. But they won’t freaking do it!
This strikes me as being the bailout version of what these guys tell me during settlement negotiations. “Oh, just let us string this along another year, the market will improve and we’ll all be as rich as Donald Trump!!” I sincerely hope the Obama people decline to bail them out.
Outlander on December 22, 2008 at 12:26 PM
I suspect everyone will get a bailout…except trial lawyers..damn it!
HawaiiLwyr on December 22, 2008 at 12:26 PM
Hell no, brother. Obama is a walking bailout for lawyers.
The Democrats are good for my business. After tort reform passed in our state, a lot of good lawyers on both the plaintiff and defense side of the bar lost their jobs or had to retool in other areas. The med mal, products liability, and personal injury cases dried up almost overnight. Democrats hate tort reform and love having lawyers sue everyone. Obama also plans on appointing judges who will take an expansive view of rights and will take a pro-plaintiff perspective on their day to day cases. All of this means there will be lots of jobs for lawyers — i.e. a bailout!
Outlander on December 22, 2008 at 12:38 PM
Well, you could always ask for a bail out. And then you wouldn’t have to wait long to see the next headline:
wise_man on December 22, 2008 at 12:39 PM
Usually, people are griping, they’re being taxed to death.
Now, gov’t is giving money out… Just the opposite.
And, even though their taxes haven’t gone up, they’re STILL yelping like scalded dogs.
go figure
franksalterego on December 22, 2008 at 12:47 PM
The Interventionists….
The thought of no plan, no invention is alien to their core beliefs because they don’t trust the marketplace as a starting point. Bush’s latest laughable quote actually sums up the fading idiocy of his domestic Presidency and the one to follow.
“I’ve abandoned free market principles to save the free market system.”
Next in line, the idiot savants, Obama and crew. They will be taking intervention to Everest heights as the crowd cheers.
America as we knew it is gone. That pain is the fork.
patrick neid on December 22, 2008 at 12:56 PM
And this is a problem how?
Count to 10 on December 22, 2008 at 1:07 PM
I base my optimism on looking at the Big Picture….
More money floating around the private sector is good for everyone.
It means, jobs that would otherwise be lost, won’t be.
It means, prices that would otherwise rise, won’t.
Just because, no one’s writing you personally, a check, doesn’t mean you don’t benefit in the long run.
franksalterego on December 22, 2008 at 1:08 PM
Because it would interrupt the developers’ delusions of grandeur. I am reasonably convinced these developers watch those late-night get rich quick infomercials and actually believe them.
Outlander on December 22, 2008 at 1:14 PM
Redistribution of wealth by any other name…
…is still socialism.
dinobalz on December 22, 2008 at 1:21 PM
I’ve said it before and will say it again. You know you live in a Fascist country when you have private(ha) companies that are “too big to fail”. Big business owns the politicians in this country.
Corsair on December 22, 2008 at 1:22 PM
Yes but,
There’s only one word that describes a Depression.
And I think, that’s what we should try to avoid.
franksalterego on December 22, 2008 at 1:32 PM
This country is going down a slippery slope.
sonnyspats1 on December 22, 2008 at 1:34 PM
If only McCain had suspended his campaign to go back and kill this monster, he might be planning his transition right now. In any event, once we started down this slippery slope, we now see there is no bottom to this pit.
harrycalamari on December 22, 2008 at 1:36 PM
No doubt debtors can always rely on a bank’s lawyer to act in their best interests, not the banks. Just wondering, if that small businessman comes in with a competent attorney who’s a tough negotiator are you as inclined to preserve the debtor’s dignity and personal assets?
Boo frickin’ hoo. Like I said elsewhere, lawyers are a major reason for the high cost of medicine and our economic mess. First thing we do, let’s tax all the lawyers.
I’m sure you care more about your fellow Bar members than about retired salaried employees of GM that no longer have medical coverage.
I know doctors and dentists that do pro bono work. What percentage of your work week is pro bono? The difference between doctors and lawyers (other than the fact that doctors are smart enough to do science and don’t mind getting their hands dirty) is that doctors can’t accept or reject a patient based on the potential profit to the doctor. Doctors don’t get referral fees – in fact, fee splitting is considered unethical for physicians.
Lawyer, heal thyself.
rokemronnie on December 22, 2008 at 1:39 PM
One reason why so many industries need bailouts is because of those very same trial lawyers.
GM spends more money on product liability than on UAW hourly wages.
rokemronnie on December 22, 2008 at 1:40 PM
Too big to fail?
Or too wealthy to fail?
This sucks. When do we get our turn?
drjohn on December 22, 2008 at 1:44 PM
I don’t want a turn. Stop the ride, I’m feeling nauseous already.
Count to 10 on December 22, 2008 at 1:46 PM
More people will catch on to that truth. There is no going back.
Take a look at Norway, Sweden, Holland and you see our future but with the added twist of more special interest to be served.
50 to 70% tax rate for the mid to higher earners. Entrepreneurs will be discouraged by high taxation. Remember Obama caught on video admitting to Joe The Plumber we have to share your wealth. That is from the heart of Obama.
Time to consider bunking up, bringing mom and dad into the family home. Young people will be forced to learn how to cook instead of eating every meal out.
Concerning lawyers, good time to be in law school. Under Obama opportunities for lawyers will proliferate.
Environmental law, real estate law, bankruptcy, corporate, litigation and especially criminal law will be big.
FireBlogger on December 22, 2008 at 2:18 PM
No, bank counsel act in the bank’s best interest. But banks aren’t vindictive by nature. If the guy’s business is failing and he doesn’t have a huge pile of money hiding somewhere that he is refusing to apply to his indebtedness, it doesn’t do anybody any good to chase the guy into bankruptcy.
The problem is that a lot of people hire lawyers who don’t really know what they’re doing, who come in and “act tough” by filing frivolous motions and pulling silly crap to delay and irritate the bank. They think they are sending the message “I’m tough Mr. Bank and you better give me a good deal or we’re going to make your life hell.” To their chagrin, the bank receives the message “I’m hiding huge assets and am trying to screw the bank,” at which point I get told to chase them to the ends of the Earth.
I intended those remarks to be tongue-in-cheek. You’re right that out-of-control trial lawyers are responsible for all kinds of social harm. I actually support tort reform, even though I know it means less work for me. The message I was trying to convey is that the reason trial lawyers aren’t asking for a bailout is they know that Obama’s substantive policy preferences will result in more lawsuits and more chaos, which will result in more fees for lawyers. I did not mean to suggest that was a good outcome, only that it was a somewhat likely outcome.
Outlander on December 22, 2008 at 2:18 PM
This shows that the real problem is the credit market has seized up. It’s why people can’t buy cars, why businesses can’t expand, and why we are in a recession.
How to fix it – there’s the rub. No amount of ideologically-pleasing rhetoric will save us, Captain Ed.
Viscount_Bolingbroke on December 22, 2008 at 2:45 PM
Our turn comes when they send out the bill
agmartin on December 22, 2008 at 3:38 PM
Outlander,
I’m sorry for my somewhat intemperate response. There’s a bit of a bunker mentality now in Michigan in response to all the Detroit hating that’s going on.
rokemronnie on December 22, 2008 at 5:13 PM
Oh hell no, I certainly hope not.
Stop the World, I want to get off…
AprilOrit on December 22, 2008 at 5:53 PM
So when does the bailout get to us little people?
fossten on December 22, 2008 at 7:25 PM
I suspect that this would not be the case. The reason for this is the same reason I suspect they have been so secretive about the whole thing and did the bait and switch on capitol hill… They’re terrified of the reaction when people realize the two ton guerilla is still in the room.
Much of the problems are being caused by the non-fixed rate mortgages that were created with no thought on neither the borrower nor the lender’s side. These loans have resets that can occur at different times: 1, 3 , and 5 years. That means in 2008 we had loans hit the crisis point from 2007, 2005, and 2003. 2007 shouldn’t have been too bad as with a 1 year horizon, most people should have understood they were going to get hit. 2003 is on the early side of the bubble and would have been a minor problem. The 2005 loans would have been the real problem.
That brings us into next year. The loans that will be resetting will be from 2008 [not a problem], 2004 [moderate/severe problem], and 2006. The 2006 loans will be a BIG problem as this is when the market was in full inflation, meaning the prices were much higher and the loans given out much more freely.
I think the reason for the secrecy is that the banks have needed to shore up their balance sheets to prepare to write off losses that will make this year seem trivial. Worse, in 2010, the 2007 loans will first come due in a big way. Then in 2011 the rest of the 2006 loans will reset followed by the 2007 loans in 2012.
Basically, the banks are looking at potentially 4 CONSECUTIVE YEARS of massive write-offs. Once that fact sinks in, there is a real risk of runs on the banks. In my opinion, this is why Paulson & Co. are in panic mode and are keeping everything hush-hush.
StargazerA5 on December 23, 2008 at 11:20 AM
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