Property Values

I thought we were headed for a commercial property abyss.

That’s what all the bear hunters were saying. “Residential property was the first shoe. Commercial property will be the second.” And when General Growth Properties declared bankruptcy last year it only fueled those fears.

But a funny thing happened on the way to the funeral. The corpse just didn’t show up.

The largest mall owner in America, Simon Property Group, is looking to buy a bunch of General Growth’s real-estate out of bankruptcy. Simon already owns almost 400 properties with 300 million square feet. While their revenues are down with the recession, management believes that a lot of these retail properties have some value. So they’re looking to fill out their portfolio.

This fits in with something I’ve mentioned before. When corporations vote with their treasury funds, it’s significant. Some bears think that commercial real estate is ready to collapse because the American consumer is in retreat. But it doesn’t look that way from this news. If a collapse were coming, you’d expect Simon to squirrel away its cash, not spend it on acquisitions.

But if commercial property is finding a bottom, just as residential property has, then the banks aren’t ready to collapse in a Banking Crisis 2.0. And if that’s the case, they’ve got plenty of capital. Companies will be able to borrow, and the U.S. should be back in business.

Douglas R. Tengdin, CFA
Chief Investment Officer
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