Exurban sprawl speculation crashing local banks

[A depressing 186-acre parcel of land in Ramsey was once a planned site for 600 houses. Img. Glen Stubbe, Strib]

This Strib article is why you should always glance at the Business section before you line your birdcage. It's an article on the commercial real estate bubble, and how highly vulnerable smaller, local banks are to the impending foreclosure and over-building of speculative commercial property.

I remember reading about this a while ago, when my small, local bank was listed as being overly leveraged with bad mortgage debt. Well, the commercial real estate bubble ends up hitting these smaller banks far more than larger ones, whih turns exurban farm fields and second-ring stripmalls into our own miniature Dubai. Here are the important quotes from the piece:

From unfinished housing projects in the far northern suburbs to emptying office parks in Edina, developers are walking away from their debts -- forcing banks to take large write-downs. Last week, for instance, a commercial broker began marketing 186 acres of raw land in Ramsey, intended for 600 houses, that was taken over by a Wisconsin bank. And later this month, a 200,000-square-foot portion of the Twin Cities' first suburban office park -- Pentagon Park in Edina -- will be sold at a foreclosure auction after its owners defaulted this summer on an $18.5 million mortgage.


Yet, bankers say they have been hit particularly hard by rising vacancy rates in strip centers. The retail vacancy rate for the metro area hit 10.1 percent last year -- the highest level since NorthMarq, a commercial real estate company based in Bloomington, began tracking the data more than a decade ago.

This has two noticeable effects. The first is that is shows how the financial speculation and banking fiasco are tied to sprawl and speculation. Almost our 21st century economic growth was based on real estate speculation, and this influx of made-up cash gave lots of construction workers jobs, lots of people houses they couldn't afford, and (for a short time) high profits for banks and financial companies. Well, the end of this ponzi scheme means that a lot of parcels of land, and a lot of retail and commercial properties aren't worth much anymore.

It also reminds me of how overbuilt the US retail sector is, in general. In her book Big Box Swindle, ISLR author Stacy Mitchell describes how we have way more retail real estate than we would ever possibly need. Our cities and suburbs are way past saturated with big box stores, malls, and everything else under the sun. And for a long time, due to a lucratice regulatory climate (tax breaks for depreciation, up-front tax money from cities), these have been rock solid investments.

Well, things may be changing now, and the suburban landscape may soon look a lot like the North Minneapolis housing situation. Abandoned stores, abandoned malls, abandoned Denny Hecker dealerships. If you're an urban planner, what do you do with an empty Circuit City store?

[A foreclosed office building in Pentagon Park, Edina. Img. TCBusinessJournal.]


A recent quote from Kunster's latest screed talking about the immanent downfall of over-leveraged local banks:

It reminds me They may go down anyway, because the catastrophe of commercial real estate is following right on the heels of the fiasco in residential real estate. The vast oversupply of malls, strip malls, office parks, and other furnishings of the expiring "consumer" economy is about to become the biggest liability that any economy in world history has ever seen. Who will even want to buy these absurd properties cheaply, when they will never find any retail tenants for the badly-built structures, nor be able to keep up with the maintenance (think: leaking flat roofs), or retrofit them for anything? In a really sane world, a lot of these buildings would go straight to demolition-and-salvage -- except that it costs money to do that, and who exactly right now will make a market for used cinder blocks and aluminum window sashes? I expect these places to become squats for the desperate homeless.


Anonymous said...

Judge not of men and things at first sight...................................................

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I wonder if the the commercial real estate bubble is still weak before the crisis.