“Commercial Real Estate Gets Worse?” For Whom?
August 18, 2009
This story just came out in USA Today.
I’ll copy it below and highlight the parts I want you to really let sink in for you.
Commercial Real Estate Gets Worse
To try to contain the damage, the Federal Reserve said Monday that it will extend into 2010 a program to help investors buy commercial property loans. But some say that will have limited impact.
“We seem to be nearing the end of the recession but the situation in the commercial real estate market is getting worse,” says Patrick Newport, an analyst at IHS Global Insight.
About $83 billion of office, retail, industrial and apartment properties have fallen into default, foreclosure or bankruptcy this year, says research firm Real Capital Analytics. The default rate for commercial mortgages jumped from 1.62% to 2.25% in the first quarter and should hit 4.1% by the end of the year, says Sam Chandan, president of Real Estate Econometrics. The carnage will likely cut half a percentage point off economic growth this year and in 2010, Newport says.
Fueled by easy credit, developers built too many shopping malls and office buildings from 2004 to 2007. As the economy soured, vacancy rates rose. Property values are down about 40% from their 2007 peak, Deutsch Bank says, and loans for commercial properties have come to a virtual standstill.
Hundreds of smaller regional banks, which are heavily exposed to commercial mortgages, could go bankrupt the next two years, Newport says.
Unwilling to seize devalued properties in a moribund market, lenders have foreclosed on fewer than 10% of the loans, says Real Capital Analytics. That’s prolonging the crisis by keeping properties from being resold at lower prices, says New York real estate lawyer Edward Mermelstein.
A bigger problem: the nearly $1 trillion in short-term commercial mortgages slated to mature by the end of 2010. With property owners unable to refinance, even solid loans could go into default.
To ease that crunch, the Federal Reserve is extending a program to lend investors up to $200 billion to buy assets backed by commercial mortgages and consumer loans. The program, which has lent just $29.6 billion, was to expire by year’s end.
The initiative should establish realistic asset prices, reviving the market, says Jeffrey DeBoer, CEO of the Real Estate Roundtable, which represents property owners.
Chandan is skeptical, saying banks are moving away from commercial real estate loans to diversify.
END OF STORY
Now…do you think THIS is the time to be BUYING commercial real estate from those banks who NEED to sell them?
We’re in position. You can be too. We’re here to help you be there.
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2 Responses to ““Commercial Real Estate Gets Worse?” For Whom?”
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Hey Carlos, How did you gave 23 offers in one day. Don’t u have to do due elliegence first then make an offer. How do you check if apartment is a good price or not?
This is Brad answering for Carlos, but to clear up any confusion, he did not make 23 offers “in one day.” He made his 23rd offer the OTHER day. Some of these offers he made a couple months ago and are still in negotiation. The offers are out there…sometimes they take longer than others to get accepted. Especially if his offer doesn’t get accepted right away and they accept someone else’s….his offer is still valid for his price and he waits to see if their other deal falls through.
Hope that clears it up Vlad