And Now Wilbur Ross on Commercial Real Estate…
October 30, 2009
Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”
Seems everybody is singing the CRE blues today….
[via Bloomberg]
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Just returned from the Appraisal Institute Fall Conference in SF yesterday, attended by about 400 of Bay Area appraisal colleagues. I was there to moderate a session called Retail Market Update, focused on Bay Area retail market conditions. Summarizing both the collective opinions expressed by the senior retail brokers on my panel, and the overall tone of the 15 other sessions presented at the conference, Wilbur Ross is correct regarding the three fundamentals – rental rates are down and vacancy and cap rates are up. Of course, for anyone as active in this market as commercial appraisers are on a day-to-day basis, this was not news. The real news story here is the depth of the negativity about current and future market conditions expressed by those of us in the trenches analyzing real deals every day. Note that the higher cap rates reflect the virtual inavailability of financing, so the cap rates reflect almost exclusively the expected return on equity.