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Matt Recore

Blackstone's Overpaying for EOP marks the top of the commercial real estate market. Just like Time Warner overpaying for AOL marked the top of the dot com boom. Sam Zell, the self made real estate billionaire, couldn't sell fast enough. He actually has been quoted several times as saying "The reason I am wealthy is because I have bought from the pessimistic and sold to the optimistic many times in my life."

Most people don't know it but the commercial default rate is about .2% right now. The all time high in the late 80's, was 6%. That's a default rate 30x higher than right now. What's a vacant commercial property worth to a lender? Think about that. They are getting no income from it and its sitting on their books. In the past downturn's, it's worth jus the land value. I know a few investors that bought commercial buildings for land value in 1995. (meaning the structure came for free)

What will cause the default rate to rise? For one many of the investor's in California that bought commercial buildings at historically low cap rate's of 3,4,5,6%. With such a low cap rate it doesn't take just a small increase in expenses, or small increase in vacancies to make the building lose money.

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