The most read article posted on Real Clear Markets recently was one from Forbes with an idea about how to move capital trapped in the real estate market into more productive sectors of our economy.
Here’s an outline of the article:
- Problem: Underwater loans for commercial properties that are either overbuilt or vacant.
- Goal: Convert ‘in the red’ properties into green space and hold for development.
- Solution: Permit banks to deposit some of their excess real estate securities with the Fed, remove those properties from the market, convert to green space, and hold until the market recovers. A $200 billion land bank fund, provided by the banking system and backed by the Federal Reserve, would be established to help finance this conversion.
- Effect on Fed: The Fed would be shifting some of its Mortgage Backed Securities (MBS) purchases to new Land Backed Securities (LBS) – long-term assets backed by the eventual redevelopment of most of the green space. This would be a straightforward way to redirect capital out of bad investments and eye sores like dead-end malls, empty stores, and vacant factories, so that the capital can be redeployed into our new asset-light economy.
- How this differs from TARP: The stimulus money changed nothing. Jobs were protected but not stimulated. No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational. Converting real estate to green space and freeing that capital would have three positive effects.
- Direct job creation for demolition and green space conversion.
- Strengthening the banking system by removing bad real estate loans so banks can make new loans.
- Real estate owners will spend and invest more, knowing their properties have stabilized in value.
The article by Michael Messner — who runs a hedge fund, Seminole Capital Partners — is copied in full at end of post. Continue reading