Sunday, April 5, 2009
Issues Within the Commercial Real Estate Market
By Michael Collins
In today’s turbulent economy, much of the focus is on home prices and how buyers and sellers will cope. However, commercial real estate is suffering as well.
Much in the same way that falling residential real estate prices and bad mortgages have hurt the banks, it is expected that the problems with the commercial sector will only increase stress on banks. At the end of 2008, MSNBC predicted that 2009 would be a difficult year for commercial real estate. “About $36 billion of commercial real estate debt will expire next year , and about $55 billion of debt on average will roll over annually by 2012. That's a ‘significant’ increase from most recent years…In normal times, much of that debt could be easily financed. But in recessionary times? ‘A lot of that won't be (refinanced) at current rates or terms,’ he said. ‘Lenders will have to take action on these loans.’”1 Because of the potential inability to refinance, many foreclosures can be expected.
Since that article was written, other problems have arisen. In Late March, Boston’s John Hancock Tower was sold for half of what was paid for it in 2006, showing a steep downturn in commercial real estate prices.
Many hope that investors will start buying up low-priced and foreclosed properties to take advantage of the situation and help revive the economy. However, in these uncertain times, many are worried about prices falling even further and remain apprehensive.