Dome sells for less than a home
If you don’t think commercial real estate is tanking, check out this deal: 127 acres containing an 80,000-seat stadium that cost $55 million to construct sells for… $583,000. I know the Detroit Lions used to play there, but still.
The city of Pontiac, Michigan unloaded the Silverdome at auction yesterday. The buyer was an unnamed Canadian company. From the Detroit News:
“This was a giveaway,” said David J. Leitch, a broker with an Auburn Hills based realty firm.
“The property alone, at $10,000 an acre, should have gone for more than that. And you have the Silverdome, its contents, and the infrastructure already in place. I had estimated it would probably go for between $1.2 million and $3 million. I can’t believe it.”
A lot of people can’t believe it.
“The citizens of Pontiac deserve better,” (Councilman Everrett) Seay said. “This is pennies on the dollar (of what it cost). It goes to show how bad times are … Worse, we don’t even know who bought it.”
Pontiac officials say it’s a Toronto company that plans to bring Major League Soccer to the Detroit area. The soccer league says it has no clue about that, so I don’t know what’s going on there. The Silverdome is aging (built in ’75), but it could still have some years left. It hosted the World Cup in ’94, and in ’87, it packed in 93,000 people for Wrestle Mania III, featuring Hulk Hogan. And how about that Barry Sanders??
I digress. A local group is suing to block the sale. It offered $20 million for the Superdome just last year, but the deal fell through for some reason. It’s one helluva price drop from 20 mil to half a mil.
I’m not saying this situation is representative, but the commercial real estate market is ugly. In a very thorough slide show (recommended reading), Clusterstock explains how it’s come to this:
- The MIT Real Estate Center said that commercial property prices has dropped almost 42% over the past 2 years.
As a result of that drop, about fifty-five percent the $1.4 trillion commercial mortgages that will mature in the next five years are underwater.
The delinquency rate for commercial mortgages climbed to 5% in October. A year ago the delinquency rate was just 0.77%.
About half of all commercial mortgages sit on the balance sheets of smaller banks. So the massive number of bank failures this year is significantly attributable to losses from commercial real estate.
Market veteran Michael Panzner says there’s no way to stop what’s coming in commercial real estate:
From what I can see it’s a tsunami unfolding and it’s going to be a real train-wreck over the next two to three years for the banking sector. I don’t think there’s any way around that issue. Zero.
That doesn’t sound like a shoe dropping. It’s more like a Hulk Hogan body-slam.