VACANT MALLS, OFFICE BUILDINGS, INDUSTRIAL REAL ESTATE; THE NEXT BAILOUT OF REAL ESTATE AND INSURANCE COMPANIES ONCE AGAIN

Did you ever go to a mall where a few stores stood empty?

Did you get that funny feeling passing by the stuttered widows or "fake" window displays in the vacant store announcing that the merchandise in the window was from another, still open store?

Near my home is a mall like that.

Last year most of the interior stores have thinned out, with the anchor stores were still standing, but the interior of the mall was an echo chamber.

There were less and less shoppers other than those going directly to the anchor stores and then exiting out to the parking lot.

Not one of the closed stores has opened up as another chain store, nobody wants to open up a store, a boutique....nobody wants to take a chance on a new business in that mall.

I wondered how that mall owner was going to pay the mortgage on that property?

After inquiring further, I learned that this mall is owned by a large mall owner who is attempting to negotiate a better deal with its creditors, and has troubled assets on its balance sheet; other similar malls.

I learned that RETAIL SPENDING accounts for 70% of all consumer spending, and that 25%-30% of that accounts for the Holiday sales.

The better restaurant has closed, the only food in the food court is still being served by a McD's, and several questionable food operations staffed by various foreigners who apparently own the places, hocking their specialty foods, many of which I could not pronounce.

The marry go round still operates, although often with one child on it going around and around to create the impression of some type of activity.

Tracking the ownership schematic....this mall owner is being financed mostly by debt that is owned by.....SURPRISE.......large insurance companies, most of which have not yet been bailed out by the government.

In fact, most malls, and commercial office buildings, are financed owned or in some type of JV project with insurance companies, who have done well over the years in owning such projects or being involved in financing them.

What happens though when the project does not generate enough cash to pay its mortgage loans?

It gets foreclosed, and the lender own it, that;s what happens.

GE is about to publish all the real estate it owns or is about to own...that will be the tip of the iceberg of the total coming to a head.

This is how it works: consumers who have been living off their credit cards, start running out of available credit....by the Christmas sales season this year, their credit lines will be tapped by financing the purchases of day old pastry, food and utilities during the year, leaving little to spend on another shirt or a third TV set for the house. Also, those 29.9% rates on the cards will now appear to be a larger charge than most of the purchases they made to date.

Retailers will be reeling from the lack of spending.

Malls will be getting notices from their tenants of leaving at the expiration of the leases, and many tenants, if not all the tenants remaining, will want a reduced rent, since the expectations of the mall traffic did not materialize. In addition, the percentage leases that many mall owners get from the revenues generated, will decline as well thus generating less and less rental income.

The mall will go into foreclosure, and will be owned by the insurance companies that now also are not generating any income from their foreclosed properties sufficient to cover their costs.

Since 70% of consumer spending is retail, the retailer will pace less orders for goods throughout the entire world, especially in the US, since goods produced here are more expensive.

This entire domino effect will now result in less retail sales (this includes cars), translating to less factory orders, resulting in less needs to transport the goods, resulting in more layoffs in the transportation sector and the industrial real estate sector which now houses those factories, resulting in more layoffs of factory workers, etc., etc......

Who gets to foreclose on those empty warehouses and industrial buildings?

You guessed it, insurance companies and other lenders for these types of properties who are financed by insurance companies.

Are you seeing where this is going?

If you thought the $175 billion given to AIG was a lot, just start adding up the total defaults and losses by the rest of the insurance industry holding all these other loans!

Will they be bailed out too?

Make sure that you life insurance is being offered by a well rated company....and watch for the next "bubble", to blame for the recession, the greedy financing of the real estate industry, part 2, the commercial real estate markets, since many of them were more leveraged than most of the individuals in the sub-prime category.