Winer: Commercial Real Estate Troubles Dead Serious

Winer: I agree with all of that. There's really no clear answer on the housing. We're involved in a couple of land-development companies. One in particular is the Newhall Ranch, which is 20,000 lots in Los Angeles County. And we're very optimistic about the future growth of residential development in Southern California, and elsewhere.

But we haven't seen all the pain yet. We're seeing signs that the pricing for housing has stabilized, and in some places, actually, has ticked up a little bit. But there's still this wall of foreclosures in the residential mortgages that hasn't occurred yet. So a lot of the lenders haven't completed their foreclosure yet, so there may be more houses coming onto the market in foreclosures. So we could see another leg down.

But economic stimulus, low interest rates, it's really anybody's guess as to where it's going to go from here. It's not great. There's a lot of uncertainty, and I think that's what makes an interesting market.

Stipp: So probably something that's going to take a little bit of time and a little bit of patience to see it play out. Are there any major risk factors? I mean, is there anything that's sort of keeping you up at night that could lead to more of a leg down that maybe some people aren't expecting?

Winer: It's hard to say. The residential markets are in disarray. It's hard to get mortgages. One of our analysts here, who is a solid financial guy, is buying a house in Westchester, and he makes a decent living, and he's having a hell of a time getting a mortgage.

So, if it's difficult for financially strong families and individuals to get mortgages, imagine how much more difficult it is for people who might be on the bubble to try to get a mortgage. So we're not done yet. I can't say what's going to happen, but it's tough out there.

Stipp: Sure. Turning to commercial real estate, a lot of folks have been saying, "Well, this is going to be the next shoe to drop." Some people say it's already started to drop. In a recent letter to shareholders, you wrote about some serious headwinds in commercial real estate. What are you seeing on that front, and what are some of the concerns out there?

Winer: I think that we talked about it, and we're dead serious about the fact that commercial real estate has some serious problems in the U.S. We have over $500 billion of commercial real estate mortgages that are maturing over the next two years. And these mortgages aren't going to get refinanced.

Commercial property values in the U.S. are down roughly 40 percent from the peak. And if you look at the way that properties were financed two or three years ago, they were getting, say, 70 percent loan-to-value. And now the property values are down 40 percent.

When these loans mature, there's no way to get refinancing. First of all, the credit's not out there. And even if you could get it, you can't get enough to refinance your mortgage. So there's going to be a lot of maturity defaults coming up over the next two years, and that's going to continue to put pressure on commercial property prices.

People are talking like we're at the bottom, and we've seen the prices come down, but we haven't seen the maturity defaults hit the market yet and can't even anticipate what that might do to further lower property values in the U.S.