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Over leveraged commercial
real estate properties may
have difficulty refinancing
thanks in part due to an
unprecedented drop in values
- 20% since the fourth
quarter of 2007. According
to CB Richard Ellis
analysts, the decline in
values is worse than those
seen in the early 1990s.
And it could get worse. The
breakdown looks like this;
11.5 percent in 2008 and 10
to 12 percent in Q1 2009,
this according to Raymond
Torto, global chief
economist with CB Richard
Ellis Research and
Consulting.
Should Q2 drop in values
maintain the trend seen in
2008 and Q1 2009, investors
could be in even worse shape
if their commercial real
estate loan is due or
called.
Richard Parkus, head of CMBS
Research at Deutsche Bank,
projected in his firm's
commercial real estate
outlook last month that
property prices are expected
to decline 35% to 45% (or
more) overall during this
recession.
To put the decline in prices
into perspective, the first
year’s decline in the 1990s
downturn was 4 percent.
However all is not lost. In
the United Kingdom, the
decline in values is about
39 percent, which is also a
faster decline than what
occurred in the 1990s
downturn. But London has
seen faster correction than
other markets and is leading
the way in comparison to the
U.S. The correction in the
U.K. during the course of
this year is on the rental
side more than the capital
side.
If the US commercial real
estate market trends
similar, we could see values
falling into the first
quarter of 2010 and then
begin a gradual
stabilization, or even begin
trending higher in Q3 2010.
A recovering economy, job
growth, inflation and
absorption or retail space
and office space could all
be the catalysts for an
improving commercial real
estate marketplace.
So where does this leave an
investor facing commercial
real estate refinancing over
the next couple of years. In
a vulnerable position if
your commercial property is
over leveraged. While the
CMBS markets were good to
investors searching for high
leverage, it could also be
the Achilles heel by
prohibiting the refinancing
of commercial real estate
that was over leveraged
during the height of the
CMBS boom.
Contact a CommercialBanc
commercial mortgage analyst
to learn how we may be able
to help you refinance your
commercial real estate loan
or multifamily loan. |
