Posted by: jhamon | July 1, 2009

When Will Commercial RE Recover? 2017!

I recently wrote,

[A commerical real estate broker named] Reay sounds like one of the DotBomb “buy the dips” crowd that bought Webvan all the way down when he goes on to observe of the current commercial real estate unwind“It’s fast becoming one of the best buying opportunities of a lifetime.” 

Smarter people than me agree that those looking for a quick real estate bottom here are delusional.  From Reuters:

NEW YORK (Reuters) – The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities said on Monday.

“The froth is still working itself out,” Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. “We are currently in something which is comparable to what we saw in the 1990s and potentially worse.”

U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.

Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.

“Rents will be back to where they were in 2017,” Parkus said. Building prices also will take six to eight years to recover, he said.

The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.

In the quote above, Parkus makes note of the disparity between asking rents and actual rents.  I am experiencing this right here in good old Del Mar, California.  We are out looking at space as we are readying to launch our first fund.  On Camino Del Mar, our little piece of old Highway 101,  Class A office space has been sitting vacant for two years and yet landlords are asking 2007 rents.   Delusional.

Morever, if actual rents are off 50%, cap rates simply won’t support current commercial real estate asking prices.  A price collapse is inevitable.

Advertisements

Responses

  1. […] news by jhamon Cushman & Wakefield Sonnenblick Goldman's Commercial Mortgage Rate … […]

  2. […] not buying 2012.  See my post When Will Commercial Real Estate Recover?  2017! for a more sanguine […]

  3. […] Oops!  I told you so. […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: