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 The Journal still insists that CRE will not be that bad this time around. I don't see why so many are walking around with blinders on! Name brands have put a hurtin' on banks repetitively, yet no one seems to learn their lesson...

 WSJ :

Sixteen years ago, developer Ian Bruce Eichner was forced to give his lenders the keys to his newly finished office tower in Times Square. The empty building, a symbol of one of the worst downturns in U.S. commercial real-estate history, ultimately cost his lenders and partners about $200 million.

Mr. Eichner, a slender, fast-talking New Yorker, managed to stage a second act -- but it appears to be ending much like the first. Cosmopolitan Resort Casino, the casino-hotel complex he's building on the Las Vegas Strip, got caught last year in the capital-markets crisis and is headed toward foreclosure. Deutsche Bank AG has sunk nearly $1 billion into the project, and two other lenders have provided $175 million. It's unclear how much of it they'll be able to recoup...

... n an interview earlier this year, Mr. Eichner said he was a victim of the credit crisis, and that banks eventually would lend to him again. "It's probably pretty safe to say that somewhere in 2009 or 2010, Bruce Eichner will surface with another one, something," he says. "There's zero that will stick to my shoes."

Mr. Eichner's roller-coaster track record shows that in commercial real estate, failure on an epic scale need not be a career killer. Other prominent developers also had to surrender projects to lenders in the 1990s, only to borrow more money and fail again in the most recent cycle. Earlier this year, New York developer Harry Macklowe, who gave back several buildings more than a decade ago, defaulted on short-term loans he used last year to buy seven Manhattan skyscrapers for $7 billion, because he was unable to line up long-term financing.


The willingness of lenders to give such developers more money helped fuel the commercial real-estate boom that started in 2003 and reached its zenith in early 2007. Some of those lenders now face the potential for loan losses. Centro Properties Group, one of the largest shopping-center owners in the U.S. and Australia, for example, has been unable so far to repay $4.9 billion in short-term debt owed since December to creditors including J.P. Morgan Chase & Co., Bank of America Corp. and Commonwealth Bank of Australia.

Hardly anyone is predicting that souring commercial real-estate loans will cause the kind of banking crisis that struck in the late 1980s and early 1990s, when large banks in the U.S. and Japan had sizable chunks of their loan portfolios tied up in the collapsing sector. Although commercial real-estate values have softened in some markets, they haven't experienced the kind of free fall that occurred back then.

And this time around, lenders tried to spread the risk. They gathered loans into pools and sliced them up for sale to investors as commercial mortgage-backed securities, much as housing lenders did on the consumer side of the market. So far, securities backed by commercial mortgages are performing far better than their residential counterparts, whose implosion helped set off today's broader credit crunch.

But like residential lenders, some commercial real-estate lenders, including Wall Street investment banks, were lulled by sharp increases in property values and projections for fat profits. Competition among lenders was so intense that developers were allowed to kick in less and less of their own money -- sometimes less than 1%...


Ideal Environment

...It proved to be an ideal environment for battered developers to stage their comebacks. To be sure, they couldn't do business with some of the lenders who backed them previously. But there were plenty of others.

"If I or anyone else needed money, you could call up the bank and they would send a Brinks truck over to your office," says Donald Trump, who admits to have put "some hurt on banks" in the early 1990s, during the prior cycle. "There was so much money flowing, so much money." Mr. Trump, having bounced back, in recent years built residential towers in Manhattan and forged lucrative licensing deals that added his name to dozens of luxury buildings around the world.

For Mr. Eichner, who brags that he finished last in his law-school class at the University of Cincinnati, the 1990s brought plenty of trouble. Besides giving back the Times Square building, called 1540 Broadway, he lost CitySpire, billed at the time as Manhattan's tallest apartment house, to his creditors in 1992. In 2000, subcontractors who hadn't been paid forced his Park Central Hotel, another New York project, into bankruptcy-court protection. Yet because Mr. Eichner relied heavily on debt and contributed little of his own money, the failure of the projects didn't lead to ruinous personal losses, people familiar with the projects say.

At least one lender vowed never to lend to Mr. Eichner. Bernd Knobloch, chief executive of Eurohypo AG, a bank based in Eschborn, Germany, recalls a meeting in the late 1990s in which Mr. Eichner handed him a book by Jerry Adler that chronicled the Times Square failure: "High Rise: How 1,000 Men and Women Worked Around the Clock for Five Years and Lost $200 Million Building a Skyscraper." Mr. Knobloch says he was astonished. "He handed me the book that talked about how he lost $200 million," he recalls. "To his prospective lender. I said to myself, 'This is not a man I'm going to work with.' He never saw me again."

Mr. Eichner says he doesn't recall meeting Mr. Knobloch. He concedes that some lenders likely blacklisted him. "The first couple of deals, I was under a microscope, and not surprisingly. There are people to this day who won't deal with Harry, won't deal with Donald, and won't deal with me."...


Soaring Values

By the middle of this decade, fueled by low-interest rates, easy credit and soaring values, commercial real estate was hot once again. Developers were building and selling at significant profits. And lenders were competing to make big loans that brought big fees. Charlotte, N.C.-based Wachovia Corp., for example, jumped from near the back of the pack in 2002 to take the lead in commercial lending by 2007, by combining attractive terms with aggressive marketing on loans of $50 million and up.