2008-08-20, 09:12

Looking for Bad News

By: Multifamily Real Estate Industry Team
I opened the newspaper this morning to again find more bad news about Fannie and Freddie, not that it came as a surprise. The New York Times is reporting that a government bailout of the mortgage giants is virtually inevitable.
http://www.nytimes.com/2008/08/20/business/20fannie.html?_r=1&th&emc=th&oref=slogin

By my estimation, we have been slugging through this financial crisis for a little more than a year. (I can almost recall to the day last summer when my 900 mile an hour real estate practice came to a screeching halt.) Rather than continuing to wallow in my depression about the nation’s dismal financial circumstances and the fact that the capital markets remain virtually shut down, I am adopting a new mental approach to the situation.

First, I have resigned myself to the fact that more bad news is coming. We are not at the bottom yet. (Again no surprise.) Second, I believe that instead of holding our breaths and hoping for the best, we need to get to the bottom of this mess as quickly as possible, no matter how far down the bottom leads us and how painful it will be once we get there. That is the only way we can start to climb back up again. Therefore, I want to immediately hear from all companies about their upcoming and anticipated losses, failures, bulk sales, bankruptcies and the like. Don’t hold back. Let it rip right now. Bring it on.

Finally, I am forcing myself to believe that as more bad news is released, there will be less bad news left to be disclosed in the future. By definition, there will occur some moment in time, whenever it should take place, that the all of material financial company losses and failures -- that are so dramatically affecting the capital markets and real estate valuations -- will have been disclosed. At that point, I am willing to believe that the markets will stabilize and little will be left to do but to evaluate the next course of action for those companies that are still left standing and are materially intact.

According to Alan Greenspan, an end to the decline in housing prices is “a necessary condition for an end to the current global financial crisis." "Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world's mortgage-backed securities. We won't really know the market value of the asset side of the banking system's balance sheet -- and hence banks' capital -- until then." http://online.wsj.com/article/SB121865515167837815.html?mod=dist_smartbrief Clearly, we need to get to the bottom of this crisis sooner rather than later to achieve that necessary market housing market stabilization.

Consequently, I am now going to be looking for bad news. I am going to take pleasure in learning that Lehman is negotiating the bulk sale of enormous portions of its real estate portfolio so as to better enable Lehman to withstand further losses on mortgage securities
http://www.bloomberg.com/apps/news?pid=20601206&sid=avq8Su7sXcWM&refer=realestate
I am going to eagerly await news that more companies are filing bankruptcy or disclosing their mounting losses.

At some point, and the sooner the better for me, we will move from being in the middle of the crisis (which is where some experts believe we now reside http://www.nareit.com/portfoliomag/08julaug/capital.shtml) and proceed to the bottom of it. I eagerly look forward to the moment we hit the lowest point, so that we can start to lick our wounds, put on the bandages and get going again.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group)

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