Industry Officials Warn of Commercial Real Estate Disaster

Article excerpt

The nation's commercial real estate market - which includes shopping centers, strip malls, apartment buildings, office buildings and warehouses - is due to suffer the same fate as the housing market, a group of industry officials warned this week.

Commercial research provider Trepp found that delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent at the end of November, up from just 4.8 percent a month earlier.

In addition, the Mortgage Bankers Association's Commercial/ Multifamily Delinquency Report showed that between the second and third quarters of 2009, the 30-plus-day delinquency rate on loans held in commercial mortgage-backed securities rose to 4.06 percent while the 60-plus-day delinquency rate on loans held in life company portfolios rose to 0.23 percent.

"What we are seeing now is the perfect recipe for disaster in the commercial real estate market in 2010," said Jeramie Concklin, CEO of Guardian Solutions, a commercial loan restructuring company. "A huge number of balloon payments for commercial property loans are coming due in 2010 and 2011. With vacancy rates at high levels, unemployment soaring and commercial property values plummeting, commercial property owners are not going to be able to service their debt without serious restructuring of their loans and business. Property owners need to prepare now in order to avoid default."

Local experts, however, disagreed.

David Burnett, of Sperry Van Ness, William T. Strange and Associates, said the best component of the metro area's commercial real estate market is multifamily housing.

"I am quite biased about the apartment sector outperforming other asset classes," Burnett said. "The biggest reason why the apartment sector will continue to outperform all others is the continuing availability of financing."

And maintaining that transactional volume will depend largely on the involvement of HUD and Fannie Mae, he said.

"FHA is fast becoming the go-to source for financing apartment portfolio acquisitions," he said. "HUD's 223F program, which can underwrite deals differently than Fannie or Freddie, has been an invaluable source of financing particularly for larger apartment deals."

In fact, Burnett said, that type of financing didn't exist for other asset classes and should serve to bolster apartment activity this year. …