Experts predict continuing weakness for commercial real estate
- October 13, 2009
By Paula C. Squires
Things won’t get better quick for commercial real estate. Despite signs of an improving economy, problems plaguing commercial properties will linger into 2010 and beyond, a panel of experts said today at Virginia Commonwealth University’s 19th Annual Real Estate Trends Conference in Richmond.
“Prices for commercial real estate have dropped like the proverbial stone —- nearly 40 percent on a composite basis since the peak in October 2007 and are now on par with prices in October 2003,” speaker Sally Gordon told an audience of more than 700. Gordon, managing director of Blackrock Inc., a money management and risk advisory firm in New York, predicted that “it will take a while — measured in years, not months or quarters” — before the market recovers.
Before real estate prices can stabilize, she and other speakers said the market needs a major dose of liquidity. Stephen Blank, a senior resident fellow with The Urban Land Institute, noted that $250 billion to $300 billion worth of commercial mortgage-backed security loans will come up for refinancing soon. A high percentage of these loans are interest only, with no amortization built up. That means borrowers will need to refinance the original face amount at a time when property values are down and lenders have tightened up. “There’s no solution in front of us,” Blank said.
The federal government may need to offer a structured solution, he added. “It will take some federally engineered, sponsored credit event to jumpstart securitization in the conventional market. The market is just sitting there with the expectation of the wave of defaults.”
There was a bit of good news. Jeffrey D. DeBoer, president and CEO of The Real Estate Roundtable, which represents 16 major real estate trade organizations, noted that the U.S. real estate investment trust industry has raised about $15 billion in equity capitalization. Plus, federal agencies have modified some of their policies to help prevent property defaults. For instance, he noted that the Federal Reserve recently extended the Term Asset Backed Securities Loan Facility (TALF) a program designed to revitalize the securitization market. Set to expire this year, it has been extended through March of 2010.
Local industry real estate executives who attended the conference took the experts’ news in stride. While the macro-view continues to be negative, real estate is local, and they said some deals were still getting done.