I was in Palm Springs week before last and I took note of several large strip malls between Murietta and Palm Springs. Whoa, it was ugly. I was driving through in the early evening and some of these places looked like ghost towns. Several see-through 6-8 story office buildings. That furniture-oriented strip mall near Moreno Valley – the one with like 8-10 different furniture stores – was almost completely empty. Maybe 15 cars. A couple of store fronts were already vacant. That area is already turning into a disaster area.
The construction loans are coming home to roost big time. There were some write-offs at year end. There will be more write-offs in 1Q. But 2Q is going to be the really ugly quarter because much of the junk underwritten prior to late-2006 (right before bankers got construction religion) will be coming off their interest reserves. There’s nowhere to hide once the interest reserve runs out. You gotta be selling plenty of units or it’s Bedtime for Bonzo. Lots of losses on the way.
And then there’s the CRE. It’s going to be ugly. I still don’t think it’s going to be as bad as the early-90s were closer to the coast, but it’ll still be plenty painful. And all of that crap near newer developments (almost regardless of where those developments are)… oh my. Disaster.
