Commercial Real Estate Blog

The lender that was honored as “Lender of the Year” for 2006 just two short years ago has now seen itself get sold to Citigroup for next to nothing. Wachovia, who held the position as the largest commercial lender and servicer in 2006 is now gone. Wachovia generated in excess of $60B in commercial mortgages in 2006, and serviced nearly $180B in mortgages and CMBS that same year.

We are really in the midst of something historic here, as a huge consolidation of power and wealth is happening right under our noses, and we are paying for it. If you’re familiar with the Panic of 1907, you will see that history is suspiciously repeating itself, and if there is a lesson to be learned, it is that JP Morgan Chase Bear Stearns Washington Mutual will definitely survive, and that Bank of America Countrywide Merrill Lynch US Trust LaSalle, Barclays Lehman Brothers, and Citigroup Wachovia will likely be right there too.

Wachovia issued a report earlier this month on the state of commercial real estate. Generally speaking, they are bearish on almost all asset classes. Citing a tight lending market, oil prices, slowing demand, and other factors, the anticipation is that the run up in asset prices will continue the reverse which was initiated over the past few quarters.

The report contains a lot of useful data and charts, and rather than paraphrase the details, I’ve outlined the key points below. If you’d like to read the whole report, it is available here for download.

• Traditional Commercial Mortgage Financiers Pick-up Market Share
• CMBS Issuance Halts and About Face
• Nonresidential Construction Set to Weaken
• Property Fundamentals Correction Underway
• Domestic Banks Tighten Lending Standards
• Slowing Economy Puts Pressure on Office Fundamentals
• Industrial Demand Cooling Off
• Apartments Expected to Benefit from Housing Slump?
• Retail Slowing with Consumer Spending

There isn’t much that wasn’t generally known in the report, but the numbers and charts quantify what is going on. The prices are national averages so cap rates, costs per square foot, etc. in the report vary significantly from what assets trade for in Silicon Valley and bay area. Nevertheless, money chases opportunity so any fundamental change in other markets will have an impact on our local market as opportunity costs become to great to ignore.