Ai Won't Save the Real Estate Market

Forget Ai as the destroyer of economies. Bad as that is, if you really want to see economic destruction happening in real time, look no further than the highly-inflated world of real estate development. This implosion is already under way and gathering momentum. The only question now is which sucker is going to be left holding the bag:

In residential real estate, the big scam is developers overpaying for dirt on which they can overbuild rental units way past their normal density. How? Simple. By devoting up to 10% of the units to "affordable" or "low income" housing, they can kick up the allotted unit maximum to 10% over normal. Parking limits go out the window. No additional roadways or street improvements. Just more congestion and more people who can't afford it.

Did I mention that in a middle class neighborhood, a two bedroom apartment goes for $5,500 a month? Some affordability. But who cares? The developers and lenders are in it for just as long as it takes to flip it out. Take the money and run. Leave the instant slums for some other sucker to manage.

One lot near where I live is maybe an acre, tops. Butts up against a freeway and a major street. Nothing but dirt a year ago. Now it's home to a 375 unit monolith with the same unaffordable affordable housing. Best I can guess is that the communists in charge are banking on so much congestion that worker bees have no choice other than public transportation. With one problem:

None of the worker bees can afford the rents. Which means everything is eventually going to die in default.

It gets worse.

Commercial real estate is playing musical chairs, too. The former AT&T tower in St. Louis was sold for approximately $3.6 million, marking a significant decrease from its peak value of $205 million in 2006. Ouch.

And now the Hackman Group, which just a few years ago overpaid for as many movie studios as it could eat, is swan diving into defaults around the world. One example is the Radford Studios, home to shows like Seinfeld, Mary Tyler Moore and John Wayne's Republic Studios, just fell of the shelf, too: Hackman paid $1.8 billion for it just a year or so ago. This month, Netflix snatched it up for a tick below $400 million.

Do the math. A YUGE crash is coming and there's nobody left to save it. Unless you know people in Dubai.

Moral of the story: Hoard as much cash as you can, as fast as you can. You'll need it.