Experts Talk About Real Estate

I have been out listening to experts talk about commercial real estate and the international financial "crisis' (I really don't like that term) that we find ourselves in. Both talks eventually came down to the same point of view, and that was the value of the government "bail out" of certain financial institutions. The first talk was by congressman Dan Lungren (R-Sacramento), who was re-elected by a slim margin yesterday. The congressman was mostly self-promotional but did speak to his perspective that we are nearing the bottom of the crisis and although real estate prices are not going to soar for a while, at least we should see them leveling out (thanks, of course, to the Republican leadership in the House).

The other talk was by Ray Davis (president of Umpqua Bank). Ray praised the bailout, but insisted that it was not really a bailout at all. He said that Congress was really investing in deeply discounted and troubled properties, that they would sale in a few years for a large profit that would benefit the taxpayer. He also said that the government was investing in the banks that are strong (not those that are faltering) by infusing large amounts of cash (Umpqua got $214M) in exchange for preferred stock with dividends (interest). The interest starts out to be very cheap and then gets very expensive if the infusion is not paid back in five years. Of course, the plan is for the banks to make this money available to their communities for new mortgages of all kinds. Ray is convinced that we are near the bottom of the financial crisis, as is Dan Lungren. From the perspective of a company (Ceres Associates) that makes a good portion of its living off the commercial real estate, I certainly hope they are right and not just optimistic.