Today’s Wall Street Journal reported that commercial real estate developers are aggressively lobbying for a government bailout, trying to get into a $200 billion program designed to “salvage the market for car loans, student loans and credit-card debt.” Because the developers have a ton of debt coming due next year, and the frozen credit markets will prevent them from refinancing that debt, they want the government to step in. If they cannot refinance the debt, then their lenders will take over the high-rises and malls and hotels that the developers currently own.
This is where the bailout madness must end. Real estate developers are in a completely different league than banks or car companies or consumer debt. The bailouts for those industries could at least be defended, since credit and employment and consumers are essential for the economy to work. But allowing developers to keep the speculative properties they built does nothing for the economy. It doesn’t prop up employment or consumer spending. All it does is shift dollars from taxpayers to a few very wealthy and connected developers. If developers were erecting new buildings, at least they could claim to support construction jobs, but in this economy, not a lot of new buildings are being built.
Here are several of the problems I have with a bailout of developers:
- As noted above, there is no economic benefit
- Developers usually finance each project separately, so even if they lose one to the banks, it won’t bring down their whole firm
- Developers push strongly against government regulation (zoning, height limits, etc.) when they are building, standing on the spurious rubric of “property rights.” So why don’t they rely on their precious freedom now instead of turning to the government?
- The same issue of the WSJ also had a piece on how some real estate developers saw the crash coming and conservatively boosted their cash reserves, and are now sitting pretty. So why should we bailout the developers who were not so prescient?
Finally, I should note that generally speaking, developers are wealthy and sophisticated individuals or families. They weren’t talked into these investments by shady mortgage brokers, and they already have plenty of resources to deal with their problems. In fact, let’s look at the three named developers in the article. There is William Rudin, whose family “is a large Manhattan office building owner.” If you are a large owner of Manhattan high rises, then you are very very rich. The Related Cos, a major developer has, according to its web site, a $10 billion real estate portfolio, and this privately held company remains under the control of rounder and CEO Stephen Ross. Vornado Realty Trust is a huge landlord, publicly traded, with a market cap of $9 billion. Vornado CEO Steven Roth was paid $1 million last year and exercised options worth $68 million. On December 8 of this year, he exercised more options, with a net gain of $13 million. Do these guys need a bailout?
The government can’t keep giving money to every industry that asks for it. Let’s draw a line, and let’s draw it at the hugely wealthy individuals who don’t need and who won’t help the economy.