Dan Tishman on CNBC – CRE Second Shoe To Drop
September 21, 2009
Tishman said the commercial real estate bubble was created by an over-eagerness of lending.
“One property being acquired and then being lent on and lent, created this,” said Tishman. “Multiple levels of returns were required and that caused the problem. I don’t see values for commercial real estate coming back for two to three years.”
Lending was only part of the problem. Investors not doing their homework and thinking they needed to be in the market was the other half of the equation. The other big overhanging issue was the drive to generate fees. The fee business can turn into an ugly thing – particularly when vertical industries are heavily reliant on fees.
From brokerage to real estate investors to the banks securitizing the debt which they sold yet to other investors, there was a major incentive at each step of the way to generate fees. They were all telling each other what they wanted to hear, and the bubble was inflated upon that premise. Now they are all telling each other its a nuclear winter and to go hibernate and we’re headed back down in a similar fashion.
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Tags: CNBC, Commercial Real Estate, Dan Tishman, Tishman Construction, Video
We are starting to see these problems in the Oakland, CA market. Banks are starting to foreclose on commercial properties, especially ones bought in the last 2-3 years. The rental rates required to service those loans are long gone and we are seeing some owners just hand back the keys to properties i.e. Hines with the Watergate Office Towers in Emeryville. http://southflorida.bizjournals.com/sanfrancisco/stories/2009/08/17/story5.html
We are also seeing the banks that made loans on commercial properties being shut down by the FDIC. Only after the assets of the closed banks are purchased by solvent banks do we see the properties actually sell. Unfortunately it is a slow process involving the purchasing bank getting its arms around what the assets are and actually valuing the properties. The problem with placing values on the buildings is that there was not enough sale activity in 2008-09 to establish relevant comps. In my opinion this will be a long, slow crawl out of this mess.
Welcome and thanks for the comment Dave. I agree that we are at the front end of bank failures, particularly at the community and regional bank level.