"No hands raised."

Bulletin, May 22, 09: "Commercial Real Estate is Next Economic Hurdle..."

"When he asked the crowd of roughly 250 mostly bankers in the audience who had dealt with the problematic commercial mortgage-backed securities, no hands raised."

Yeah, Right.

And that, my friends, is why we won't know what'll happen to CRE until it happens. Between you and me and the cat next door, we'll be 'surprised' when someone falls. Like one of those bridges that people drive across every day for 50 years that one day simply drops into the river.

Still, I think the local economic situation has cleared enough for me to make some predictions; at least enough for me to make some decisions.

MY CRYSTAL BALLS.

1.) The level of business I'm seeing now is the level of business I expect to see for the next 2 years, plus or minus 10%. That any improvements in the next 4 years will be incremental and barely noticeable.

THE EVIDENCE, SUCH AS IT IS.

I base this conclusion on a couple of things.

A.) I asked myself how long it will be before we need another hotel built, another shopping mall, another office building. Not to mention, another subdivision. And until then the jobs that existed in Bend to build, to sell, to insure, to furnish, and so on will be moldering. I think we could be looking at a 5 year supply, when the "gray matter" (people who would sell if they could) is included.

B.) Commercial real estate has another year or two before it reaches the stage that housing is at now.

"Those five or 10-year loans that were made in the credit-fueled boom times of 2005-06 are maturing in the next one to two years..."

Most of those loans, I'm guessing, were based on 2.50 to 3.00 a foot leasing rates, and a low vacancy rate. Good luck with that over the next couple of years.

There are probably a bunch of businesses that are waiting for things to turn around. Sure, summer will be better than winter, but it'll be a proportional improvement -- that is, if there have been 20% declines year to year, that isn't going to change.

RE-UPPING FOR THE DURATION.

I'm surprised that some of the restaurants and furniture stores were reoccupied by former workers. Sure, they may have gotten better deals and may not be saddled by as much debt -- but I'm afraid the advantage of that has dissipated over the last six months, so they are probably 'proportionally' in the same position as the original owners. Plus, I doubt they have as much money as the original owners, though it's possible they're more savvy about the business.

WHAT? HUH?

That moment when the light goes on in a owner's brain that tell him or her that things aren't going to improve anytime soon, will be different for each business -- depending on motivation and resources. But I think it is inevitable.

I bought Pegasus Books in 1984, when Bend was at the bottom of it's last depression. There was a 60% vacancy rate downtown.

A BEAR WANDERS THE WOODS.

1984 was the same year the Reagan got re-elected with the slogan, "It's morning in America." The more appropriate commercial for Bend would have been the one from four years earlier, because we were definitely bear doo-doo. (For those newcomers among you who wonder why Bend didn't manage growth better, that's the reason. Trauma. Pure terrifying, near death Trauma.)

There was a HUGE disconnect between what was happening in the world at large, and what was happening in Bend.

WHAT'S WRONG WITH YOU?

I think we're due for the same disconnect. In some ways, it makes it even more uncomfortable if you're not prepared. You'll hear stories about how other stores in other parts of the country in your industry are "DOING GREAT1" You'll have to take a little extra time to explain to your suppliers why you can't order tons of something that "EVERYONE ELSE" is selling, and so on.

Once again, if I'm wrong on the downside, it's a lot less painful than being wrong on the upside. So far, I'd have to say that I mentally expected this large a bubble bust, but emotionally was still unprepared.

And as always when I write such a gloomy post, I want to point out that Pegasus Books is doing just fine. Really.