By: Jerry Hall, CCIM
For several months now news about how the nation’s current economic crisis is affecting the commercial real estate market has been spreading like wildfire. Warnings about growing defaulted loans and foreclosures have dominated headlines. Troubled assets are becoming more and more common, and real estate investors are on the look-out for the new deals - both off market and on - that are coming available. In fact, according to research firms like Real Capital Analytics, “the volume of troubled commercial properties grew by 122% in the first half of 2009 as approximately $67b of properties became troubled and few troubled situations were resolved.” Loan modifications and sales have only resolved 10% of this distress.
So where are the distressed properties that we keep hearing about? Banks appear to be in a holding pattern when it comes to commercial real estate. Unlike the days of the Resolution Trust Corporation (”RTC”) sale-off, banks today seem reluctant to place their REO properties on the open market, as they are afraid to take a loss. According to Deutsch Bank, property values are down approximately 40% since the 2007 peak. Banks do not appear to be motivated to dispose of properties at realistic prices, yet more distressed properties are on the horizon. Real Capital Analytics reports that “June was a particularly heavy month for new distress, indicating that the pace of defaults does not appear to be slowing.” Banks are prolonging the crisis by refusing to sell their distressed assets. Further, aside from fears over losing money on assets, banks are cautious not to worsen the current economic situation by the flooding of the market with REO properties.
However, advisors within Sperry Van Ness are working with banks throughout the country to advise them on the best disposition solutions, thus encouraging banks will begin to place their distressed assets on the open market. In the last couple of weeks have we seen a trickle of properties become available, and are optimistic that more will become available in the coming months. There are opportunities coming…
** This is the first of what I hope will be many entries for our new blog, I will be starting on a monthly basis and hope to expand it to a weekly blog. I am looking forward to hearing back from everyone and reading your comments.**