Many experts are predicting further declines in commercial property values and performance, at least through 2009 and some are looking for recovery as late as the fourth quarter of 2010.
The Obama Administration has been funneling billions of dollars into lending institutions and dedicating billions more to the housing industry and its hoped-for recovery. This begs the question, is the President ignoring the problems now surfacing in the commercial property sector of the economy?
The short answer is yes. The longer and more complicated explanation may lie in understanding the fundamentals of the lending and insurance industries as they are the prime note holders and owners of much of the nation’s commercial real estate.
Although commercial property value declines are now underway in almost every property category, lending institutions may be free to use TARP and other funds to shore up the ailing commercial market.
A high percentage of commercial real estate owners (estimates are between 40% and 80%) will find refinancing difficult from 2009 through 2012 as 3 and 5 year note calls begin to kick-in and owners face a new set of qualifying requirements designed to reduce lender risks in commercial property lending.
There appears to be more creative liquidation and seller financing emerging in the market as owners face the reality of a shrinking market and the pressure to create cash flow.
Creative financing has been and will continue to be a major factor in structuring transactions during the commercial real estate recovery. We have been recommending that owners who can take on the roll of lender do so as this leverage enables competitive pricing and can produce healthy yields over the long haul.
It will be some time before we have any definitive indicators that the President’s overall approach to the economy has helped or harmed the commercial real estate sector.
This post written by and sponsored by Donald Teel, a Commercial Real Estate Specialist in Prescott, Arizona affiliated with Arizona Commercial. Donald can be reached by calling him toll free at (928) 777-8100.