There is a sudden spate of financing going on in the real estate space. Bank of America Corp. (BofA) is leading the way underwriting stock offerings by private commercial real estate firms. 2010 is projected to be a banner year for initial public offerings undertaken by troubled private Real Estate Investment Trusts seeking to find public money. If you can’t find a lender – Hey! – why not the public purse? Take a look at the condo market in New York City. It’s alight with newly bonused financial executives seeking their post-bonus purchase. Are the two related? Does that mean that confidence is storming back into the real estate market?


It means that financially strapped private REITs need to find money to avoid the ravages of bankruptcy and a few creative executives from the Merrill Lynch –BOFA acquisition are taking them public and earning their executive keep. The resulting compensation packages in the form of straight compensation, commission, or bonuses then fuel the odd NYC condo market – together creating the localized illusion that things may be getting back to normal. So where does the truth lie?

In jobs, that’s where.

Commercial office buildings need people – not to run them, but to occupy them.  A jobless recovery like the one we are experiencing now – buoyed by financial “happenings” like those described above – may fuel a gasping stock market and save it from another year of treading water, but is not a “real” real estate recovery. Without workers, tenant organizations contracting for new space, buildings lie fallow and cash flows take a big hit. Commercial mortgages are about to hit a refinancing wall.

Deutsche Bank analyst Richard Parkus estimates that more than 65% of the loans that have been packaged into commercial mortgage backed securities won’t qualify for refinancing when they come due. When those loans were made, the banks did not factor in a 40% decline in prices.  There certainly will be hell to pay.

Bottom line…go out and hire somebody.