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Actual Bad News? Or More Doom & Gloom Anti-Hype?

March 3, 2008

This is not good news:

After suffering a beating from their exposure to home loans, banks and securities firms are about to take their lumps from office towers, hotels and other commercial real estate. And the losses could last longer than those from the subprime shakeout.

As the economy wobbles and financing costs rise because of the credit crunch, commercial-real-estate values are starting to slide, with analysts at Goldman Sachs Group Inc. projecting a decline of 21% to 26% in the next two years. That means misery for securities firms with exposure to commercial-real-estate loans and commercial- mortgage-backed securities.

Thing is, after the last crash in commercial real estate, lenders and institutions were supposedly far more disciplined.  The WSJ article even mentions that:

If there is a silver lining, it is that the excesses that overtook the U.S. housing market aren’t as prevalent in commercial real estate. Overbuilding of shopping malls, office parks and other commercial property hasn’t been rampant, although vacancy rates are climbing in such markets as Orange County, Calif., and Las Vegas, which have been hit by the weak housing market.

I’m not in commercial lending, so I can’t speak to the truth of this story or not.  But one would think that (a) condo flips didn’t exist in commercial, and (b) the institutions should know better.  That certain markets are hard-hit can’t be denied.

At the same time, unless there is an actual, deep recession, with many companies going out of business, this might be a great buying opportunity for commercial investors with cash.

-rsh

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2 Comments leave one →
  1. March 3, 2008 2:02 pm

    Keyword: Cash

  2. March 3, 2008 3:31 pm

    I’m going to assume you mean to comment on investors who can play in this space. Of course you’re right, if so.

    But at least in commercial, I wouldn’t rule out some institutional investors with ready cash to pick up Class A office buildings for cents on the dollar….

    -rsh

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