Banks Non-renewing? Fine- Foreclose on my Current Loan Then!

by Bill Davis

General Contractor of Industrial Pre-Engineered Buildings

“Surviving the current economy – An Analysis of bank lending practices of 1979-1983 “

Investment Alert! Warning bells were going off and a sense of déjà vu when I received my second phone call from a commercial real estate investor having problems renewing his commercial loan.

Is This the Bottom of the Daytona Beach Commercial Market?

by Tim Davis

Someone asked me today if I thought this was the bottom of the market. The tone in which he asked me reminded me of a story from my youth:

Once a regular customer of my father’s building supply store posed him the question, “Hey, what can you sell me here real cheap that I could take to the flea market on the weekend to sell and make some money on?”

Long Term Vacancy leading to Great Leasing Incentives

By Tim Davis

The prolonged slump in the commercial real estate market is leading to some fantastic deals to be had on existing buildings with extended periods of vacancy. Several examples of buildings in the area that are now being offered at radically reduced base rents…

– Commercial Loan Defaults on the Rise

With loan defaults rising, analysts say the struggling commercial real estate industry is poised to fall into the worst crisis since the last great property bust of the early 1990s.

Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or shut their doors.

The commercial real estate market’s fortunes are tied closely to those of the sinking economy, especially unemployment, which hit 8.1 percent in February.

“Until jobs start coming back and industry starts doing better we don’t see performance increasing” among landlords, said Christopher Stanley, an associate with research firm Reis Inc.

While the commercial real estate industry’s woes led to the recession of nearly 20 years ago, this time the industry is “the victim of the economic and financial crisis,” said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services in Walnut Creek, California.

Vacancies at retailers, Nadji forecasts, will shoot up to 11 percent by year-end, matching the peak of the early 1990s. Office vacancies are likely to hit 18 percent by year-end, he said, short of the 1990s-era peak of more than 20 percent.

The commercial real estate market is “at the precipice,” a report by Detusche Bank said earlier this month. So far this year, delinquency rates are up to 1.8 percent of loans in March, more than four times the year-ago level.

Faring worst were retailers, office building owners and apartment buildings. Hotels and industrial properties posted more moderate increases.

Deutsche Bank’s Richard Parkus projects delinquency rates will keep soaring to more than 3.5 percent by year-end and as high as 6 percent by late 2010. He says the industry’s woes will be “at least of a similar magnitude as those that the commercial real estate faced in the early 1990s.”

Drops in property values of 45 percent from a peak in late 2007 are possible, Parkus said, exceeding those of the early 1990s, as demand for office, retail and other commercial space plummets amid a worsening economy.

Adding credence to those gloomy predictions, the government said Thursday that the U.S. economy shrank at a 6.3 percent annual pace at the end of 2008, the worst showing in a quarter-century.

Funding for commercial loans virtually shut down last year as the financial system unraveled.

There was $12.2 billion in commercial mortgage debt issued last year, the lowest figure since 1991 and down 95 percent from 2007, according to a report by Reis.

Making matters worse, about $216 billion in loans are coming due through 2012.

That is putting landlords in a squeeze.

About $11 billion of distressed commercial property is currently up for sale, compared with a lackluster $2.7 billion worth of properties that were actually sold in February, according to Real Capital Analytics.

A growing imbalance between supply and demand is likely to push down prices in the coming months, analysts say.

Similar to the residential property market, foreclosures and defaults are surging, with nearly $19 billion in commercial real estate loans in default, foreclosure or bankruptcy so far this year, according to Jessica Ruderman, a senior analyst with Real Capital.

More than 20 metropolitan areas nationwide now have at least $1 billion in troubled commercial loans, she said, up from five at the end of last year. Landlords in Las Vegas, Manhattan and Los Angeles are struggling the most.

As the industry’s troubles worsen, disputes are breaking out. The Dubai developer helping build the $8.6 billion CityCenter complex on the Las Vegas Strip said Monday it is suing struggling partner MGM Mirage over concerns about the project’s viability.

One major shopping mall owner, Chicago-based General Growth Properties Inc. has been struggling to avoid bankruptcy for months. It faces a Friday afternoon deadline to get permission from lenders to avoid penalties for late debt payments.

Alan Zibel, The Associated Press