The Newest Rivalry: Koster vs. Cross
World Cup fever has struck here at Llenrock. With all this talk of England vs. USA, another great rivalry that has surfaced this week may be about to boil over, under the radar: is the other commercial real estate shoe going to fall off or not? There were two opposing views offered up this week by Jones Lang LaSalle’s (NYSE: JLL) James Koster, and Venable’s Gregory Cross. Let’s examine who had the upper foot…I mean hand.
Cross claimed at the Reuters Global Real Estate and Infrastructure Summit that a slew of real estate bankruptcies is coming in the the next 12 months due to low interest rates and low valuation. Meanwhile, just a few days ago Koster told Reuters that the real estate bubble isn’t as destructive as previously thought. Koster believes that the strategies being employed by banks to extend, restructure, and modify loans is working to keep borrowers above water.
Cross would counter that $1.5T of debt matures in the next three years and it isn’t quite clear how this is going to be paid off. He also contends that the current US “recovery” is not sustainable, as he describes himself as a “double dip (recession) guy.” So which flag will Llenrock be waving? Probably just like every World Cup match, both flags will be present.
I’m going to side with optimism, and say the worst is over and that the current regulations in place will help borrowers and banks refinance any debt that needs it. There will obviously be foreclosures and defaults but certainly not as many as Cross is projecting. At this point, I think (read: hope) that the only thing that would induce another dip is a major European sovereign debt default. My colleagues may disagree, and I’m sure we’ll see in the comments section what they think.
While there are solid points to support both arguments, only time will tell which is correct. However, as sure as the vuvuzelas will be blaring during the next World Cup match, you can bet that the debate over commercial real estate will intensify as we get more information about the current economic recovery. So what do you think it will be? Reply to us, but be warned: Zinedine Zidane may be trolling our comment pool, and we all know how he settles disagreements.
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