Editor’s Page
Cynthia J. Hoffman
No Relief in Sight
FROM AN ECONOMIC STANDPOINT, THERE IS LITTLE TO BE
thankful for this year. Initial jobless claims reached their highest level
since September 2001. Home values continue to decline, and US foreign
trade has slowed. The nation’s Big Three automakers are on the verge of
bankruptcy, while retailers brace for what could turn out to be the worst
holiday shopping season in years. And with GDP dropping 0.3% in the
third quarter, there’s little doubt that we are in a recession.
Meanwhile, Treasury Secretary Henry Paulson has decided to shift the
focus of the $700-billion financial rescue plan. Rather than buying up
troubled mortgage assets, initially a key component of the bailout program
aimed at getting banks to resume normal lending activity, the Treasury
plans to infuse some $50 billion into consumer credit markets. While it
is vital to the country’s economic health to make funds more available to
consumers, such a tack isn’t likely to thaw the commercial debt markets.
With sour loans still on their books, few lenders are likely to dip their toes
back into the market. Obviously, measures must be taken to improve the
financial climate. However, Secretary Paulson’s quick shifts in direction lead
one to wonder if Treasury officials—or anyone else for that matter—know
how to repair a market that is severely broken down.
It has also been a painful time for publicly traded real estate companies. There has been a wave of third quarter earnings calls informing
investors of suspended or reduced dividends and measures to stem
the tide of declining revenues, which has been followed by downgrades
from ratings agencies and industry analysts. And there’s a growing list of
resigning CEOs, most notably Jeff Schwartz of ProLogis, as firms shift
from a growth mode to a more defensive position.
General Growth Properties could serve as the poster child for failing
REITs, although it’s not by any means the only one with problems. Once
one of the country’s leading retail owners with a trophy-studded portfolio,
GGP has seen the value of its stock decline precipitously as a result of
being highly leveraged. There is much speculation about whether GGP
will file for bankruptcy or find a buyer for the company. But in this market, there will be few investors with the cash and desire to take on such
elevated debt levels.
For more insight and analysis on the world according to TARP as well
as what’s going on in the REIT and REOC sectors, see our special coverage in News Wrap, beginning on page 10.
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