Haven't been here for awhile because I've been working on a screenplay. However, I received an editorial from a good friend about why commercial real estate equity investors are having to fold up shop and wait for any CRE deals to come their way. After reading his newsletter, I had a lot stored up to say, and here it is:

CB,

Very interesting reading and quite thought provoking.

I agree that this economic situation is not the original Great Depression for a variety of reasons (i.e. soup lines, 25 percent unemployment, residential real estate, CRE boom, etc.) but as we've talked about before, I do believe it qualifies as Great Depression II.

The similarities are there--excessive investment risks that basically blew up and an unemployment rate that--looked at closely--hovers near 25 percent. Even worse, an interconnected global landscape, which I won't get into because I just don't know enough about it.

I do know, however, that the Federal Government has manipulated the processes and changed the rules to such an extent that it cannot play out in any historical context. I'm referring, of course, to the "tools" Ben Bernanke and Tim Geithner are able to use to prevent another economic collapse.

In reality, I think anyone with common sense realizes they are putting off the inevitable.

Bernanke, Geithner, Summers, etc. want to continue the 30-year joy ride of booms and busts, excessive consumer spending and rising debt rather than watching the natural course of deflation within a fiat economy.

Therefore, fire sale prices on residential or commercial real estate and a gradual recovery don't fit into a model that relies on large banks tied to investments around the globe. Meantime, our heros in government would love to see consumers start spending money--whether consumers have money or not.

Besides the fact that weak consumers and businesses can't get debt to spend and strong consumers and businesses don't want debt, all of this tinkering also creates uncertainty in all of the markets--real estate, commodities, etc.

But, banks want to survive, so they are going to be conservative in lending and not show their hand via mark-to-market (or model) accounting rules--since the federal government is helping them to do that.

Consumers want to survive, so they are not going to spend beyond their means and, with unemployment up for quite some time, they don't even have that much to spend anyway.

There's also uncertainty for people with jobs who will not spend anytime soon because they are not sure the economy is going to improve.

Everyone is saving--nobody is spending--except the Federal Government, of course. That's the other problem--the Federal Government is bankrupt--out of money and printing it--so the FDIC does not want to close banks and expose their lack of capital and value behind the paper they're printing.

Hence, you have “extend and pretend,” or manipulation of accounting rules, uncertain values and pricing in our markets. Pardon the pun, but it's change you can't believe in--and I mean pocket change.

It also keeps real money on the sidelines for everything except the stock market because investors get "free money" (or very cheap money) to invest in it.

As for commercial real estate, sure you're going to do a transaction on a fully leased trophy property at 60 percent of the original purchase price in Washington, D.C. Refinance? Why not? As long as banks don't have to show losses. But, will anyone buy a loan on a multifamily development deal? Will anyone do a transaction for a retail outlet in Cincinnati, Ohio? Not if a bank can extend the loan, hoping for that value to miraculously go up via some time machine back to 2007?

Frankly, printing money and throwing it at U.S. banks to bring us back to those halcyon times of 2005-2007 just doesn't make alot of sense, but that seems to be the Paulson-to-Geithner handoff approach. They want to win one for the Gipper (another pun).

In the end, as I mentioned, everyone does what is best for themselves in our greed-laden, self-absorbed society--including politicians, the banks, the American people and equity funds that receive investments but need to fold because they are not able to get the deals they want. As for CMBS, my greatest fear is the conflict-of-interest between AAA senior bondholders and the B-piece buyer a.k.a special servicer as interest shortfalls increase.

Let's face it, AAA bondholders want foreclosure, special servicers are holding on and future CMBS bondholders are going to say, "Why in the world would I ever want to invest in this market again?" Until it changes significantly (i.e. rating agency reform, tighter underwriting and confidence in that underwriting), I just don't see investor confidence coming back in droves.

But, thinking of greed, that would not be the first time I've seen an industry implode because its leaders did not look out for the industry itself. And why should investors come back in droves to anything with certainty?

Unemployment is showing no signs of actual improvement and, as someone told me about three years ago, it's all about "jobs, jobs, jobs" when it comes to commercial real estate. As long as there are jobs, CRE is OK. No jobs, however, mean industrial, retail, hotels and office properties grow vacant. No liquidity means they cannot refinance.

It's not rocket science, and I know I'm probably regurgitating most of this from your own writings.

The other point you made, about these CEOs...well...I hate to say this, but before the 2008 crash, all these Wall Street CEOs were saying how their companies were strong, they had no problems and the next thing you know, Lehman Brothers is going bankrupt. CEOs and politicians are the same breed--they say what needs to be said at the time, regardless of reality.

How many times did we hear that there was no housing bubble? How many times did we there was no contagion from residential to commercial real estate or the CMBS market? How many times did an optimistic CEO say investors will be back in CMBS soon? They’re optimistic because they can be optimistic. If they're wrong, it doesn't matter.

Best case example—Jonathan Kempner, former president and CEO of MBA--buying a building without tenants at the precipice of the CRE market only to see market values collapse and tenant nowhere to be found. Kempner's advisors were likely CEOs from commercial real estate firms who must have had some inkling about what was going on in the CRE world at that time.

So Kempner ends his MBA reign with a nice severance package, he now works as a CEO in New York bringing investors together, he continues to earn more money than I’ll ever see in my lifetime and, meanwhile, MBA looks like a bunch of idiots (particularly on a Good Morning America segment I saw today).

The moral to this story is that CEOs are not rocket scientists, they try to be optimistic and--yes--a few tell it like it is. But most of them are salesmen, trying to sell you on a company or a concept that this is the USA and the economy is coming back strong. That is, until they come home, sit back, have a drink and think about how incredibly horrible this situation really is and will likely be for some time.

The way I see it is…as harsh as my outlook appears, I know investors who look at the situation with a far worse perspective than myself.

The money stays on the sidelines for most properties until there’s any certainty in value which, by the way, started this stupid thing in the first place.

To me, it's ironic. Investors were not investing in the markets because of value uncertainty and, now, the Federal Government (Timmay and the boys) have made valuation even more uncertain with their lucrative "toolbox" of tools to keep the economy from going off a cliff.

The reality is, they just slowed down the car from heading off the proverbial cliff. Slowed it down enough for real property values to not come back for at least 10 years.

Just my two cents, and keep up the great editorials.

Robert