08-03-2009 @ 4:18 am

It's August, Where Are We?

August 3, 2009

Economic news continues to indicate a significant slowing of the downdraft, if not a bottoming out, of the economy in general.  Residential real estate prices in many areas have firmed and started to creep upward while new home construction surprised many with its spike.

Commercial Real Estate (CRE) has officially become "the other shoe" that many are expecting to drop, however many in the industry are starting to question whether the widely anticipated Armageddon is really going to materialize.  Late last year and into this year, we concurred with consensus thinking that CRE was in for a major blood bath within next 12-24 months.  We are seeing signs that while there are undeniable problems on the horizon, and in some cases closer, the outlook may not be a bleak as predicted.  A couple of factors to consider:

  • Loan servicers of CMBS loans have shown a willingness to extend performing securitized loans, which was not even considered a possibility last year.  This will help postpone some rollovers until credit is loosened.
  • Many owners have seen this coming and have had time to do creative work-arounds.  Some may have sold properties to reduce debt, others have brought in outside equity or partners.

  • Banks are quickly getting their balance sheets in order.  Unfortunately, the FDIC is currently pressuring banks to reduce their real estate loan portfolio.  This pressure should be temporary as banks continue to clean up their balance sheets and return to profitability, however no one knows how long it will take for the pendulum to swing.

Once again, we are not trying to sound Pollyannaish about CRE.  We anticipate some substantial carnage, however not as much CRE will be available for cents on the dollar as previously presumed.  There should still be plenty to go around, though.

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