REIT Wrecks on the Geithner Plan

REIT Wrecks has put up a highly intriguing commentary on the possible effectiveness of the Geithner plan in the face of a building volume of commercial real estate defaults and delinquencies.

Overall, there seems to be a lot of debate about Geithner's plan. The consensus I've seen so far is that the Geitner plan is an improvement on all its predecessors. However, many wonder if it's still not ambitious enough. Does it go far enough to shore up the financial system or is some sort of nationalization inevitable?

REIT Wrecks' piece brings the story home--focusing particularly on the possible effect of the plan on commercial real estate. Most pertinently, the piece points to the fact that the volume of maturities will only get larger in 2010 and 2011. With values down from when those loans were originated, owners will be hard pressed to refinance or to sell properties and get enough cash to pay down debt.

I think the hope is that shoring up the financial system--and restoring the availability of credit--will help stabilize asset values or even let them start rising again. But property values are dropping for two reasons. The first reason is the lack of debt has reduced the number of buyers and cooled what had been a frenzied investment sales climate. But values are also falling because fundamentals are deteriorating very quickly. So even if the flow of credit is restored, lenders are likely to not be so generous in terms and in assessments of property values.

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