Commercial Real Estate Professional Investor Group

When will Commercial Real Estate Market Recover?

A recent LoopNet Poll indicated that at the end of 2009 LoopNet members were slightly more pessimistic than the previous quarter about when the market would bounce back, but still 59% believed it would happen in 2010.  The other 50% believed more like 2012

Many of the LinkedIn Loopnet members disagreed with a bounce back on 2010 and most gave it at lease a 2 to 3 year span before a stabilized market comeback.

One member on LinkedIn brought up an interesting point about the fact that the residential markets were still not completely bouncing back, If commercial real estate lags residential by at least two years then the market may not see a real move in the positive for 4 or more years!?

Although, as with all real estate, different sectors and different locations and price ranges rise and fall independently.  Wanted to mention that and get it out of the way.  Most of what I am talking about is in general terms.

Commercial real estate mortgages face problems

“Predictions of an imploding commercial real estate market
in the U.S. are hardly new. but almost all the previous gloomy predictions came from analysts or folks in the commercial real estate business. So, when the

government’s own watchdog for the Troubled Asset Relief Program says things could get a lot worse — and I mean a lot worse — in the commercial real estate market, you just have to sit up and take notice.

Speaking on CNBC,
Elizabeth Warren said that 50% of ALL commercial real estate mortgages in this country could be “under water” by the end of this year. In what amounts to what is surely a model for understatement, she called this prospect a “serious problem.”How serious? well, besides half of all commercial real estate potentially being worth less than their mortgages in just a few months, Warren points out that something like 3,000 mid-size banks have what she calls “dangerous concentrations” of these ticking, toxic, time-bomb commercial mortgages.”

There seems to be more and more gloom and doom on the horizon. Now is a time for patience. Hitting deals out of the park is probably not in the cards, but a series of base hits could be the way to go.

Hopefully with TALF ending and extend and pretend not viable to the banks without appreciation, we can start seeing a slow change. I believe the programs have to stop so the market can start working again. Growth will probably be more organic as the banks have to let go of assets and property owners find themselves at the end of their ropes. I like the win win scenario, but in this market many will have to take loses in order for the markets to recover and this could take awhile.

Many of the problems with the lenders, that claim they are lending, is that you
have to have a lot of skin in the game and in these hard times that can be tough.

So the property owners have a real rough time refinancing. This is not a problem for the investor however, but when does investor know where the bottom is? Any investor worth his weight knows that you buy on the upswing, not when the market is falling or flat. That is why investing is stagnant.

If you can make 8 to 12% in this market you are doing well, but it seems that even these deals are like finding a needle in a needle stack.
I would like to hear about problems you are seeing and especially would like to hear about solutions to those problems.

If the market can not find a way to deal with troubled assets our recovery could last for the next 20 years.

Should I mention Shadow Market Inventory?  Houses are cheap, cheap, cheap and that causes another layer of competition for tenants. Multifamily in many areas will have to be extremely competitive at a time when they can’t afford to be.

When a good deal is found, the competition is high for the property, but I just spoke to a major auctioneer in the midwest and they reported that the banks are handing out properties very sparingly and they are finding that realworld valuation of properties is very hard to underwrite for many properties.

If anyone has long or short term solutions that they believe everyone should know about, please let me know so they can be shared. My groups reach over 20,000 CRE investors and professionals and if we are going to organically fix things or move toward stabilization we need to get the news out.

Also if I am wrong, I need to know. If there are lenders lending at terms owners in trouble, can handle or if there are market places that are on the upswing or your an investor that has a criteria that they would like to convey, let’s hear about it.

I believe that watching the market is depressing. I would like to be proactive and would like others who want to be proactive to get together to network and collaborate towards a better future for our industry.

I think it is great musing over when the market will hit bottom, but I also believe there are so many extraneous variables that it is all conjecture at best. What I do know is that the market will turn sometime in the future so the best advice I can muster is to get yourself in a position to score when the turnaround comes.

Again, watch out for false profits as the market may make a few corrections and false upswings.

If you are engaged in the disposition, acquisition, valuation, development, or finance of CRE distressed assets or notes; come and join the Commercial Real Estate Distressed Assets Association. Become part of a group of like-minded investors and professionals that want to find solutions to the issues.

JW Najarian





April 5, 2010 - Posted by | General Posts | , , , , , , , , , , , , , ,

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