November 5, 2009
We’ve heard all sorts of things to describe the fall in CRE. The most recent have been “Bloodletting” (Soros), “Huge Crash” and “Tragedies” (Ross). P&I is out with an article pointing to the recent PwC/ULI report that is being widely reported on. They’ve focused in on the most sensational part of the report:
“2010 looks like an unavoidable bloodbath for a multitude of ‘zombie’ borrowers, investors and lenders. Given the looming ‘train wreck’ of escalating commercial mortgage-backed securities rollovers ($250 billion to $300 billion annually through 2015), the shake-out period may extend several years as even some conservative owners with well-underwritten loans from the early 2000s see their equity destroyed,” the survey report notes.
We think things are going to get worse for assets which have lots of leasing or credit risk. But on well-leased assets, particularly Class A office and retail, international money is flowing in at an increasing rate. Asian and European investors faced with the prospect of holding government paper are focused in on well-leased CRE assets which provide not only a much better yield, but are also seen as a hedge against inflation in the US, something which if it arrives on any scale similar to that of the 80’s could really turn their Treasury Paper into TP.
Still, buying these assets presents a risk if simply capitalizing the income as they are likely above market. But if a well-located, credit leased asset can be found where the seller is willing to sell at a price where the above-market rents can simply be discounted back rather than capitalized, then a buyer can be found too.
- Moody’s: CRE Prices Will Continue To Fall
- Credit and Equity Markets In For Massive Turmoil According to RBS
- WSJ on San Francisco Real Estate
- European Commercial Market Down But Opportunity Remains
- London Comp Shows 46% 2-Year Decline; Santa Clara Parallel