Will the commercial real estate fall?

If yes, how low and why? give reasons!
In Market Conditions - Asked by Ravi P. - Jan 23, 2009
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Answer(s)

Joe V.
Owner/Investor
Plymouth, MI

No. The questionable real estate market, whether it be residential or commercial, is always effected by the economy more than the more secure investments of the commercial market. The best way, in any market, to remain secure in commercial investing is to get as close as possible to 100% financing (still very possible) and to focus on NNN absolute leases with corporate guarantees from at least BBB+ (S & P) rated corporations. Aside from the obvious, these corporations do all the due diligence for you when they are putting their tenant (franchise) in place, and most of the time the building has been redone to their specifications...means almost new, if not new to begin with. They have long term leases, and the guarantee means the tenant's corporation is still responsible for the lease if the franchise moves out during the lease. It's the "Ma & Pa" leases that get you into trouble since they are always effected by the economy more than the NNN/Absolute guaranteed leases.

Jan 26, 2009
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Peter M.
Lender/Mortgage Broker
Walnut Creek, CA

Joe's answer does have some merit. However at one time Circuit City was a very reputable company with long-term NNN leases. If a company files for bankruptcy and is liquidated, those leases are no longer valuable.
Yes the value of commercial real estate will fall. How far will it fall and how fast will it fall are the two main questions.
The macroeconomic factors of job loss, more stringent loan requirements, and a lack of consumer spending are conspiring against commercial real estate values.
As commercial interest rates rise, investors will need a higher rate of return to cover interest payments and to compensate for their risk. This will lower the amount that an investor is willing to pay for a property.
Expect to see 2009 and 2010 as down years for commercial real estate. The CMBS market has disappeared. This was a major source of financing for commercial projects. Financing in the next 12-18 months will be contracted. Expect higher interest rates, lower LTVs and more stringent underwriting.
This will limit the number of acquisitions as fewer borrowers will have the capital to purchase. Expect values to decrease as sellers compete for the few able buyers.

Jan 27, 2009
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Paul S.
Broker/Agent
Glendora, CA

I would ad to Circuit City Mervyn's, maybe Starbucks, Home Depot Expo and a list of over 100 credit tenants that are now gone. Sometimes the bigger they are the harder they fall. Will the commercial market fall? Of course. When the economy fails commercial goes down. It is merely part of the cycle.
If you would like to read a forecast based on research look up Integra Realty Reasources and click on to their 2009 forecast. You will see where we are in the real estate cycle in different parts of the country. Most are on their way down.
Another source is RREEF. They provide a map of hot and cold areas of the US.

Feb 5, 2009
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Mel S.
Altamonte Springs, FL

I totally agree with Peter and Paul! One more factor to take into it is the new enormeous use of the internet. Many industries that prior required Office/warehouse/building,,,ie sticks and bricks,, no longer require such...
And when you do have a viable buyer, there is no liquidity to facilitate the sale, thus, no sale, lower prices.
Less than 10% TARP money was actually used for lending.
Mel Stevens Jr.
Security Financial

Jul 25, 2009
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Mick D.
Owner/Investor
Punxsutawney, PA

I"m afraid that Peter's assessment of the Commercial market being down is correct but is not correct is the time span......the commercial market place will be down quite a bit longer than thru 2010. The loss of jobs the continuing devaluation of the dollar and many other economic factors will keep this market down for a good 5 years at least.
However, the one factor that will rear its head to become a real positive in the commercial market place will be those people who still have money but have been on the sidelines due to the markets. They will be a great source of Private Money for purchasing commercial buildings that are still producing income ie.the MultiFamily complexes. I will be buying more agressively than ever!!!

Sep 17, 2009
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Chris S.
Broker/Agent
Coeur D'alene, ID

Yes because there is $6 trillion in debt maturing and no means to refinance it.
That's more foreclosure activity than ever seen in world history.

Jan 22, 2010
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