There are many who worry that commercial real estate is the “next big shoe” to drop and the WSJ had a scare headline yesterday about the upcoming commercial real estate crisis. This has been fueled by today’s report that MGM Grand and Dubai World are considering bankruptcy proceedings on their mega Las Vegas City Center Project. It is my opinion that the market has already fully discounted the commercial real estate crisis and did so about a month after the Lehman crisis. Prime AA and AAA loans had fallen to 70 to 80 cents on the dollar and loans on properties “in construction” were deemed almost worthless. Whether banks have marked down this paper or not is another question, but the markdown is certainly in the banks’ stock prices.
--- Jeremy Siegel Commentary 3.27.09 (my italics)