Distress soon could hit U.S. commercial property
Written on September 8, 2008
U.S. commercial real estate prices are likely to tumble over the next 12 to 18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market.
Since the market’s peak in 2007, the availability of debt — the lifeblood of commercial real estate — has dried up and choked off sales. Borrowers have resisted selling because of falling prices. Banks have not sold off their troubled loans, fearing a massive write-down of all commercial real estate loans. But the clock looks to be running down.
“We’re going to see a whole lot more trouble going forward,” Peter Steier, vice president of Inland Mortgage Capital Corp said.
Steier was speaking at the Distressed Commercial Real Estate Summit East last week, where about 200 investors, lenders and buyers gathered in hopes of finding ways to capitalize on the commercial real estate corpses that are likely to come as foreclosures, sick banks and distressed loans spread.
From their peak last year, office prices in the second quarter were down 11.2 percent; retail prices fell 4 percent; and warehouse and distribution center prices were off 6.7 percent, according to real estate research firm Reis Inc faxless payday loans. Apartment prices were down 13.8 percent from their peak in late 2005.
Sales are expected to fall 66 percent this year from $467 billion to an estimated $159 billion because debt, especially securitized debt in the form of commercial mortgage-backed securities (CMBS), is either unavailable or prices are too high and terms too strict for borrowers, Reis said.
So far, many of the distressed commercial properties and loans have appeared in Arizona, Las Vegas and Florida, as well as in Atlanta — and already-troubled Louisiana, Michigan and Ohio.
“One of our biggest problem areas is pretty much the state of Ohio,” said Kevin Donahue, senior vice president Midland Loan Services Inc, a CMBS special servicer which steps in when a loan is showing imminent signs of trouble. “If we keep going, by the second quarter of 2009, I think the entire state of Ohio will become a subsidiary of Midland.”
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