Report sees U.S. commercial real estate bottom for 2010

Owners of business properties such as office buildings, warehouses and malls will suffer a surge of painful defaults, write-downs and workouts with their lenders as the market finally faces up to the reality of its diminished conditions, according to a report set for release Thursday.

The long-awaited blood bath, however, will benefit investors who are able to swoop in to take advantage of record bargains.

Unlike the formerly overheated housing market, which is in the process of being purged through foreclosures and sellers' growing willingness to lower their asking prices, the business of buying and selling commercial real estate has been stuck in neutral since the recession kicked in.

So far, potential sellers have been loath to lower their prices, and banks have been unwilling or unable to lend money for purchases. Even financially strapped owners who are unable to keep up their mortgage payments haven't had to let go because their lenders don't want to take back distressed properties in a down economy.

Banks instead have often been willing to renegotiate loan terms, a practice drolly referred to as “extend and pretend,” as both lenders and debtors hope for the market to turn around.

The era of wishful thinking is about to end, according to industry professionals who participated in a study by consulting firm PriceWaterhouseCoopers and the Urban Land Institute, a real estate industry trade group and think tank.

“The recession,” said Richard Cavota, a partner at PriceWaterhouseCoopers, “is now impacting the fundamentals of real estate.”

A key fundamental, for example, is office leasing. As white collar companies lay off employees or go out of business in the tough economy, they no longer need as much office space. Landlords, in turn, lose rental income and find it harder to make mortgage payments.

1|2|Next Page>>

SharePrintEmail

Write a Comment

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email