Next Great Bubble is about to bust - NYC Commercial Real Estate

This one's been in trouble for awhile, and now WSJ is reporting that the epic NYC apartment complex Stuyvesant Town is just months away from implosion.

The 56-building, 11,000 unit complex was acquired at the peak of the bubble for $5.4 billion by Tishman Speyer and BlackRock, with investors ranging from CALPERS (naturally) to the Church of England (not as obvious).

Here's the deal:

• The property is now thought to be worth just $2.1 billion.
• The buyers originally projected income would triple to $336 million in 2011, but right now it's only at $139 million.
• They've got just $33 million cash on hand from its interest reserves to cover its debt, and a burn rate of $16 million.

So basically: they're screwed.

Meanwhile, this sad state of affairs explains why StuyTown is so eager to advertise on subways and magazines, in a desperate bid to gain tenants? Perhaps you want to help them out and live in converted public housing (which is what it is).

Global trade still in deep recession - Cargo Ships aren't moving anywhere

Off the coast of Singapore is a collection of ships larger than the U.S. and English navies just sitting idle, waiting out the recession. It's a spectacular image, capturing our bruised global economy better than any we've see thus far.

The Daily Mail has pictures of the idled fleet, and the full story about the decline in the world's trade business.

At this time last year one of the massive cargo ships carrying 80,000 tons of cargo would cost $50,000 a day. Now it's just $5,500. To send a 40 foot steel container of goods from China to the UK cost $300,000 in the summer of 2008. Now it costs just $10,000. The world could have 25% of its ships sitting idle in the next two years.

While the President says the economy has been pulled from the brink, and economists say the recession has ended, these ships floating in Asian seas are big reminder that we're still far off from recovery.

Simon Parry of the Daily Mail: The tropical waters that lap the jungle shores of southern Malaysia could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an officer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can't immediately put my finger on.

Then I have it - his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don't even bother the lowest mark on its Plimsoll line. It's the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them. Continue>

China is playing game - Derivative issue may go wild

There was a not insubstantial sell-off in commodity prices from light sweet crude to copper on Monday:


Much of it came down to a story put out by China’s Caijing magazine, which suggested the country’s state-owned Assets Supervision and Administration Commission (SASAC) might consider reneging on commodity derivative contracts that were now relatively deeply out of the money.

It said:

China’s state-owned enterprises may unilaterally terminate commodities contracts as they try to cut massive losses from financial derivatives, an industry source told Caijing on August 28. According to the source, China’s State-owned Assets Supervision and Administration Commission (SASAC) has sent notice to six foreign financial institutions informing them that several state-owned enterprise will reserve the right to default on commodities contracts signed with those institutions.

Keith Noyes, an official with the International Swaps and Derivatives Association, a trade organization, confirmed that he is aware of the matter, but provided no further comment. Foreign brokerages usually work through their Hong Kong operations to sign over-the-counter derivative hedging contracts, according to an investment banker whose firm is involved in the business. Hong Kong and Singapore usually serve as venues for arbitration over such transactions.

Most investment banks may “just swallow” any losses arising from canceled contracts, the executive said, adding that any losses are usually made up for with compensating trades. Investment banks “just earn less” from such transactions, he said. But any such move would be a major blow to investment banks which service massive commodities hedging operations for Chinese SOEs on the international market, said the executive.

Chinese SOEs have suffered massive losses from hedging contracts since the onset of the global financial crisis. SASAC and the National Auditing Office has been investigating derivatives positions trading since the beginning of the year. A source from a state-owned company told Caijing that most of China’s SOEs engaging in foreign exchange and international trade have participated in derivatives trading, involving capital topping 1 trillion yuan.

That reportedly also contributedto a 7 per cent sell-off in the Shanghai Composite on the day.

Now, considering China’s commodity purchases have helped support the global rebound to a large degree this year, there are some important implications not only for the six banks involved in outstanding contracts, but also for all current and prospective counterparties, to say nothing of the health of the global economy in general.

What’s more if the SASAC reneges there’s no telling what sort of precedent that would set for other Chinese companies.

This is not 10 years ago, after all. China has grown to become a critical trading partner for many western institutions, with many respective counterparties clearly under the impression that the days of contract “u-turns” were largely behind the country.

As for the losses themselves, it seems many in the market do believe the sums involved could be pretty substantial.

Could this, we wonder, be one of the reasons Chinese companies were so busy stocking up on cheap commodities in the first half of the year?