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Soros Says Commercial Property Values Will Fall 30%

Discussion in 'Financial Cents' started by Clyde, Mar 27, 2009.

  1. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    I can't stand Soros, but he has made his living in the currency markets and understands what our country is doing at the moment. Read to understand

    Soros Says Commercial Property Values Will Fall 30% (Update1)
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    By Michael Forsythe

    March 26 (Bloomberg) -- Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

    “Commercial real estate has not yet fallen in value,” Soros, speaking at a forum in Washington, said. “It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent.”

    U.S. commercial real estate values have fallen 30 percent from the 2007 peak as cheap financing disappeared and the recession reduced occupancies, RREFF, the real estate investment unit of Deutsche Bank Ag, said yesterday in its 2009 forecast. Total returns in a commercial property index used by pension funds may decline as much as 11 percent this year, the group said.

    Soros, 78, said the risk of further declines in property prices is reason for the administration of President Barack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office.

    “At that moment of enthusiasm, fresh out of the gate, he would have gotten that money, and then we could have recapitalized the banks the right way, which would be to draw a line over the existing past accumulated bad assets and create new banks on top of these old banks,” Soros said.

    ‘New Bank, Old Bank’

    “Instead of good bank, bad bank, have new bank, old bank and keep the old capital to cover the old assets which are still deteriorating and will continue to deteriorate for several years” because of the coming decline of commercial real estate values, Soros said.

    Soros also said that the U.S. may face a new round of inflation should the flow of credit recover because of the large increase in the money supply stemming from the Federal Reserve’s purchases of Treasury securities.

    U.S. central bankers decided last week to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home-loan and other interest rates.

    “In order to make up for the collapse of credit, we are effectively creating money,” Soros said. “If and when credit is restarted, you would then have an incredibly swollen monetary base, which, if it were leveraged, you would have an explosion of inflation.”

    “Right now we are in a period of deflation, but it could easily tip over, where you are facing inflation,” Soros said. “You are then faced with the prospect of draining money supply as fast as credit is created.”
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