More CRE musings.

An article in Newsweek, had the following paragraph.

"...banks that recklessly financed the housing boom—and then traded mortgage debt even more recklessly—are still cleaning up the mess. But it turns out (surprise!) the same sort of clouded judgment led banks to excesses in commercial lending..."

I keep going back to the local CRE (Commercial Real Estate) market because no one else seems to talk about it. As I've said, I often see hundreds of comments on housing on financial blogs, but only a dozen or so about commercial. Which makes sense, I guess, since so many more people are immediately affected by the housing market.

But everyone in Bend will be affected by a commercial bust, too. Maybe not in a direct way, but the CRE climate in Bend will affect everyone's finances in one way or another.

What's sort of frustrating to me is that I can't find any available statistics. My web-fu can't even wrangle up an article I remember reading years ago to the effect that Bend is the second most over-retailed town in America behind Las Vegas. (Seems to me, the article was in the WSJ or the NYT's; so possibly it's proprietary info?) Retail square footage is what I want to know. It's probably out there-- but, it's not my job, you know? I'm just curious.

Besides, even if it turned out the stats said we were average or something, I'd still be convinced we've overdone it -- because of factors like demographics, isolation, types of business. Really a couple of big box stores or two either way could completely obscure any number of small businesses.

In the end I have to fall back on experience and instinct.

A little history. (If you've heard it before, move along....I'm doing this from memory, so the details may be slightly off.)

Two malls, Mountain View Mall and the Bend River Mall, were built in the late 1970's and the early 1980's. At the time, the only real business districts Bend had were downtown and the 3rd St. strip, which probably extended about half a far as currently.

Small pockets on Division, Franklin, Greenwood, Newport, and Galveston; very small pockets.

The malls enticed many of the better stores from Downtown Bend, including J.C. Penny.

The Reagan recession walloped Bend pretty hard, and downtown Bend dropped to something like 40% vacancy rate, which is brutal; worse than it sounds, because the aura of emptiness is overwhelming.

Still, a few hardy souls moved into downtown, like weeds on the sides of blasted St. Helens. Bend was static for most of the 1980's; it was a big deal if anyone attempted a renovation, much less a new building.

The big box stores started arriving with Fred Meyer, in 1990; Shopko in 1992; and just about every year hereafter. Strangely, downtown Bend was less impacted by the big box stores (Wal-Mart, etc) than most downtowns, because it had already begun to claw it's way back from emptying out into the malls.

What's ironic to me, is neither mall really ever became robust; the Mt.View mall swung some deals and appeared to be hopping for a few short years, but there were always dead zones.

I had a store in the Mt. View Mall for much of the 90's, before seeing the handwriting on the wall in 1997 and selling the store.

So what happens? They tear down both malls, which were rundown, and start over with even BIGGER footprints. Meanwhile, 3rd St. keeps stretching out, North and South, Highway 20 becomes a legitimate shopping zone, Factory Outlet Malls, Walmarts and Targets and Barnes and Nobles and just about every big box you can think of, including some still to come, like Kohl's. Northwest Crossing tries to bring in Retail, the huge Old Mill, and Century Drive and on and on.

And I still remember how much a struggle it was to make a living in Bend through most of the 80's and into the 90's. Yes, I understand we have 4 times the population, but my visualization of the retail space built is much, much bigger than that. (Visualizing being unreliable, I know, but it's all I got.)

I think we've gone way over the top. The big boxes are here to stay; we hit 'metro' status, and a red pin showed up on every planning chart.

Meanwhile, the humble businesses of the first half of my career, have been replaced by very fancy, high end businesses. (Every time one of these 'high' concept stores came into Bend in the 1980's and early 90's, it seems to me they were slapped down.)

I used to look down on Wall Street from the entryway of Pegasus, and be half envious about the traffic I saw down there, and half relieved I didn't have to deal with it. Now, I'm getting the same kind of traffic -- and there is no denying it helps my business.

I think Downtown will be the last to feel it. (The big national chains may feel it, but we'll never know.) I suspect that outlying areas, such as N.W. Crossing and much of the new development along Century Drive and Newport and Highway 20 and anywhere else that isn't a 'natural' retail zone will feel it first.

Because, I suspect that many of these new stores and malls were built with CRE monies -- which is the link I was missing. I've always thought we were over-retailed, but now I suspect we're over-leveraged as well.