While many observers fear commercial real-estate issues and mortgage resets, my bigger concerns relate to small businesses and government policies.

I have cited commercial real estate as being one area that could throw cold water on my relatively optimistic forecast. Some of the most pessimistic prognosticators cite commercial real estate as the lynchpin for their dire predictions. There are many different ways commercial real estate can influence the economy, and economists need to be more explicit about what worries them. Some people are worried about continuing declines in construction employment and how that would exacerbate unemployment rates. Others worry about the companies that are involved in the real-estate market, and more explicitly, the publicly traded real-estate investment trusts.   More 

There has been a good deal of ink spilled on the question of whether trouble in the commercial real estate market could catalyze a second dip in a fragile recovery. Since at least mid-2007, the commercial mortgage-backed securities (CMBS) markets have been on a wild ride, and we've seen several occasions in which investment managers rushed in to purchase "undervalued" CMBS only to get burned by further losses. Many asset management firms were buying up CMBS in early 2008, around the time of the Bear Stearns rescue, and though the securities appeared to recover that summer, that market declined precipitously in the wake of the Lehman failure.   More 

"Baltimore's condo prices have fallen more than 30 %," I said to my wife over dinner one night. "Are you worried?" We own a condo in Baltimore. She rents it out.

"Not at all," she said. "Not as long as we get our rent on time. I'm more worried about our investment in VNQ. Last time I looked at CNBC, the price had fallen 50%. Maybe we should sell it."

VNQ is a REIT index ETF. By law, rental incomes from REITs have to be distributed to shareholders as dividends. So what's the difference of VNQ and our condo that causes my wife to worry about the former but not the latter?   More 

Total market capitalization of U.S. REITs in Morningstar's database: $132 billion

Quite a fall from grace. Even if all those REITs consolidated into a single company, this Super-REIT would only rank 14th among stocks traded in the U.S in terms of market cap, nestled between BHP Billiton BHP and Chevron CVX.

REITs are on my mind after the bankruptcy of General Growth GGWPQ--the biggest REIT bankruptcy so far--as well as a attending a meeting last week put on by our REIT team. Here is an excerpt from the executive summary:   More