We don't sell buildings anymore, we deal in notes

One of the topics that has been coming up, over and over again to the point where one is forced to start paying attention, has to do with debt.

Real estate is a peculiar beast, in that what we are offering is really, really expensive and most buyers do not have the cash on hand to purchase these buildings.

If these entities do have the cash on hand, they could leverage this amount by borrowing more.

Few people buy real estate with money they actually have, but rather they buy real estate with money they will have, or think they will have, at some point in the future.

There tend to be a few exceptions and you can spot them because they are the ones who are not bankrupt, and not about to be bankrupt, are not hurting to the extent that someone with a maturing mortgage loan with a parade of creditors would be.

These people own their buildings, do not plan to sell and do not really plan to buy unless it is an amazing deal. You are not going to see, in my opinion, a lot of activity from these boring long term investors. They got to where they were by not being greedy or fearful and they will not be sold unlike all the suckers playing with someone elses money.

This second group of people, the suckers, they don't own their building anymore. It is going to the bank or whoever lent the money in the first place. The problem is that it will be difficult to figure out who will actually own these buildings, mainly for the same reason that the whole sup-prime mess will take a long time to sort out. There is no clear-cut owner, frequently it is a bunch of people who never met and who don't really want to own or operate a building.

If you can find these people and get them to sell you their partial interest in a building, and offer them some reasonable number above 0 for their shares, you could, in theory, buy a building indirectly on some shadow real estate market that is not monitored by anybody.

This has come up a number of times. Mostly because brokers want to get in touch with the people at the bank or they want to know who owns what on a particular parcel.

Since rents are down and vacancy is up, the margin calls will continue and bankruptcies will increase. This secondary behind the scenes loan market will get bigger.

Here is a piece on the extend of the coming tidal wave of defaults.

Perhaps this shadow market will have its own shadow bubble as more and more people pile into the unknown. But people are asking for this info and there is not an easy or cheap way to obtain it. Which means that brokers can be the gatekeepers again, but who knows if they will be "real estate brokers" or "finance / investment brokers" the lines are getting blurred.