Other Shoe About to Drop: Commercial Real-Estate, etc.

Ah yes, once again into the fray of blogging.

I haven't been feeling very well -- perhaps it's something I ate, perhaps it's the rather peculiar weather, and the allergies that go with it, or perhaps it was my genuinely amazing level of alcohol consumption over the holiday weekend -- and so I have been restricting myself to intellectual pursuits rather less demanding than blogging.

I'm still spending several hours daily in tracking down obscure yet fascinating deed transactions in Aspen Hill Land Use History.

Somehow I have managed to become Focused (grr) on this truly boring and ultimately pointless task. Indeed, I am managing to display a nearly manic enthusuasm for downloading PDFs from Maryland Land Records Network and cross-referencing with the subdivision plats from the Plats Network.

Well, you know how it is when people get Focused. They become obsessed with trivial details and totally forget about everything else, such as dating, shopping, food, sleep and most importantly to those who want to use Focus as a tool, politics.

My fascination with trivial details pertaining to land-use patterns has been most gratified by locating various marker stones and pieces of pipe hammered into the ground. Dating, eh, I think I covered that a few posts back. Food, sleep and shopping? Well, I can just stock up on groceries and beer and mostly nobody will see me for weeks at a time, and I sleep when I can't read the deeds anymore because my eyes are shot, and when I wake up, my eyes don't work right until I eat something, so who knows what sort of hours I'm keeping.

I have been out, mostly to satisfy my obsessive thirst for knowledge about why the streets in my neighborhood appear to have been laid out by chimps on acid rather than in the traditional small-town mode of glorifying the cow-paths as happened infamously in Boston and elsewhere.

To understand this, you have to understand the bounds of the lands, as those lands were bought and sold, aggregated and parceled out. Whether aggregated over time as farmers increased their lands or aggregated in a one-day frenzy of flipping as seen in the acquisition of central Aspen Hill West on September 18, 1947, or aggregated over years as in the immense tract acquired around the turn of the 20th Century by one George H Earle Jr of Philadelphia only to be sold by the heirs, or land sold off a piece at a time until only a shadow of former greatness remains, as in the division and distribution of equity as in the case of the Cassell Tract, which remnant in the modern day is mostly visible as the grounds of the Aspen Hill Library.

Perhaps I've been bitten by some strange sort of bug, or perhaps I got spellbound by wicked warlocks, but really it's more likely that I saw one too many showings of "National Treasure". But much has been uncovered and explained, such as the origin of an abandoned dirt road just east of Brookhaven Elementary School.

Of course this effort is ongoing, I mean, it wouldn't be an obsessive Focus if it wasn't both endless and carried on regardless of any possible goal or profitability. Could be worse, I suppose; I mean, I could be desperately in love with a demented foreign veterinarian and be cruising country-western bars in search of cowboys to trade into the international human organ black markets, or driving my children insane by teaching them that you can tell who's a werewolf by looking at their ears, or something equally and classically Montgomery County Weird. I'm just taking GPS readings and making googlemaps. And unlike a lot of people, I actually know where is the "West line of Hermitage" and the "end of the 42nd line of Bradford's Rest".

My point? I'm generally harmless, but have been keeping busy doing things other than nothing-but-blogging.

Besides, I must add to confuse anyone who thinks that they are (but are not) the Astute Reader, with no current One Time Pad, is no point in concealing clever comments in transparent HTML window-target statements. Perhaps is coming back from abroad cleverly concealed in phrasing from minor economic accords from recent summit meeting between leadership of superpower states. And perhaps it is already picked up from dead drop in surveyor's stake at the end of the 40th line of Bradford's Rest.

Just be careful out there as you prowl around out there in the bushes. There are more and more desperate people in those bushes, many of them coming from places where desperation isn't answered by Social Services but rather by the Law of the Pack, and they've been hunting all of their lives while you can't ever seem to even be able to find your TV remote.

In a lot of places near Aspen Hill, though the crime may frequently go unreported, violence and skulduggery is way up. Let's just say that when biker 'Nam vets from Baltimore characterize the scene in South Aspen Hill as "getting goddamn rough down there", you can't just pass it off as me being typically timid and easily frightened. Even a lot of the cops you see driving around down there have this look on their face that I translate as "when I signed on for MoCo I did not expect to be patrolling this much instant ghetto".

The fact is: probably 80 percent of the households in South Aspen Hill (which is, of course, in the Hermitage rather than in Bradford's Rest) depend on the construction trades for their income. And as poorly functioning as is the market for even "distrssed residential" real-estate, the new-homes market is doing even worse, and there is something like a 9-month surplus of new homes already built that need to be sold before there's any excuse for building any new ones.

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Commercial real-estate cannot be expected to provide all that much work for our suffering "guest workers".

Commercial real-estate vacancy rates are up 20 percent, from about 8.5 to above 10 percent in the District, and in Maryland -- already not doing too well -- it's nearly 14 percent. There's simply no need to build any more.

A recent visit to the "Rio" in Gaithersburg got me there an hour early for the premier of "Star Trek", and I spent some time wandering around looking at the stores... and there weren't all that many stores, and a lot of them had "going out of business sale" signs in the window. That was a few months ago, and I imagine that those storefronts are all empty now. And they say that when you have a retail/office complex like that, if you have any empty spaces on the street level, you probably have almost nothing but vacant office space above.

Obviously, all of that vacancy decreases rents ("Local Office Vacancies Soar, Driving Down Rent", Haynes, V. Dion, Washington Post, July 7, 2009).

The thing is, it could be worse, and elsewhere, it is. "Chicago Business" shows nearly 25-percent vacancy in Chicago's suburban commercial real-estate market.

Remember, folks, a lot of entities such as pension funds -- especially those serving public-servants such as educators, fire/rescue, and law-enforcement personnel -- have very major proportions of their assets on the books as ownership in full or in part of large commercial real-estate sites. For example, TIAA/CREF -- which serves the professional academic community -- is one such outfit, and I've been watching that part of my retirement savings take a major hit as of 6 months ago. (How did I wind up with them? Long story short: it's not rocket science, it was me doing network and computational support for rocket scientists at a university consortium.) Still, the specific investments listed in the real-estate section of my prospectus are rock solid... yet still they've declined very significantly. So don't take this as me crowing about other people's misfortune. I'm getting reamed once again, as if losing my ass in the dot-bomb implosion and then again after 9/11 wasn't bad enough.

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If I was the sort of person who had excessive wealth and wanted to hang on to it, I might try to be the first to actually short commercial real estate. Remember, those pension funds were very likely some of the entities hurt worst when it became evident that sooner or later the housing market bubble was about to burst, and they fled in part into commodities investment, specifically into oil futures, driving up the price of gasoline to over $4.00/gallon, assuring the housing market meltdown, and then when it became evident that they had lost all assets there and that this collapse would also drive down oil to recently unheard-of lows, there wasn't anything to do except to try to be the first to short oil the most.

Fiduciary responsibility is a sword of many edges and while it might not be even-handed in terms of what befals the greater economy, the duty to the stockholders is unequivocal, especially if you yourself are a major stockholder and get paid bonuses in stocks rather than in cash. In such a position, just to preserve no more than a 20-percent loss in the pension fund of, for example, the Florida teacher's union, you'd cheerfully short oil down to 25 percent of what it was 6 months before, just to keep up the values of your major asset, commercial real-estate. Shorting oil could make ridiculous amounts of money, at least until the new rules came into effect against "naked shorting", which was basically taking bets with other people's money at a game where you weren't even present and in which you had no stakes. (This is also known in classic caper lore as "the bookie is skimming the till and winning no-lose bets with it". It works great until someone notices, and then you get concrete overshoes.)

Without a fallback to either shorting something that can no longer be shorted -- there's not much lower to go, and you're not allowed to do it -- or using the after-effects of that shorting to prop up a business climate with super-cheap energy, the only way you can maintain asset valuation in your commercial real-estate holdings is to not acquire any more of it, and perhaps even to unload the less-solid sites... at discount rates. This of course leads to a scramble to the bottom, and the bottom is nowhere in sight.

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The end result of this, of course, is that there's no work at all in the Construction trades, and what there is has been going to the bottom feeders, and the race to the bottom is cutthroat. It's gotten so bad that you've got day-laborers getting paid $5.00/hour and being glad to get it, and you've got the vultures circling the check-cashing places looking to do a little "amigo shopping" (day-laborer robberies) and even as hobo "jungles" start to pop up in the bushes around various shopping centers -- the Park Police are being pretty aggressive about monitoring the parks -- you've got really scary people starting to hang out in the bushes just laying in wait for any of the homeless to try to bed down there with a few dollars in their pocket from any work they might have got.

Foreclosures -- or homes within a month or two of final action in foreclosure -- in Aspen Hill may amount to as much as 5 percent of the housing stock. Thus far, no rumors are circulating about gutted houses, or squatter shacks, and most of the lawns are reasonably well maintained, which is to say, they have been cut at least once since the property was vacated.


How long this can last, especially once the next wave of "alt-A Option Mortgages" reset to much higher payments within the next 6 months, nobody can predict. But summer is really only new beginning, and as the last of the alt-A mortgages resets, winter will only then be really with us.

And between now and then?

Don't look for the commercial real-estate sector to save us. Their total asset value is likely to drop nearly a quarter between now and then.