PrintPrintA substantial amount of commercial notes are coming due in the next three years. With empty store fronts and climbing vacancy rates driving down property values, refinancing these notes may prove to be a bear for banks under the close watch of federal regulators. This is the message delivered to guests this morning at the Commercial Real Estate 2010 Market Forecast.
By Molly Parker
mparker@scbiznews.com
Published Oct. 21, 2009
Without a patch-up plan, the commercial real estate market could become a sizeable pothole on the road to economic recovery.
A substantial amount of commercial notes are coming due in the next three years. With empty store fronts and climbing vacancy rates driving down property values, refinancing these notes may prove to be a bear for banks under the close watch of federal regulators.
“Most of that (debt) – at least a good slug of that — is under water,” said Jed Smith, managing director of Quantitative Research with the National Association of Realtors.
Smith was one of several speakers this morning at the Commercial Real Estate 2010 Market Forecast breakfast presented by the Charleston Trident Association of Realtors’ Commercial Investment Division.
With so many upside down borrowers in the pike, a solution is needed to keep the economic recovery from backsliding, Smith said. Financing is the commercial real estate market’s toughest hurdle right now. Unless the banks sell the toxic loans, Smith said, it doesn’t make sense to mark down the properties to current market value because lenders will recover their debt in the long run.
Further, Smith said, many of the five-year commercial notes will not come due until 2012 and 2013, meaning the economy could rebound before the other shoe drops.
Financing troubles are also making new deals slow to churn.
“If you have cash right now, you’re in charge,” Smith said.
Commercial mortgage-backed securities are no longer an option, he said.
Freddie Mac and Fannie Mae continue to issue some loans for multi-family housing developments. But the majority of deals that are closing on commercial properties are largely financed by assumed debt, seller financing or local and regional banks. Smith said regional and community banks are a developer’s best bet for loans less than $5 million.
“Bottom line, it’s been a long bitter road, so to speak,” Smith said. But it appears, he added, that the numbers are headed in a positive direction.
The local market is recovering slightly behind the national average, in part because of higher unemployment rates. The medical and defense industries, however, have remained fairly strong locally, propping up the local office market, said Robert Caldwell with Caldwell Commercial.
Across all commercial sectors, rates and rents have dropped while vacancies have increased. While attempting to put a positive spin on the slow economic recovery, there was some bemoaning that the good old days had passed.
Robert Barrineau, with CB Richard Ellis, Carmody, said he “gets a little emotional” looking back at real estate numbers in 2007.
“My kids refer to that as the year they got new shoes,” Barrineau said.
He reported on the industrial market, beset by the shrinking manufacturing base and declining container business at the Port of Charleston. But he noted a few positive movements as well, including the recent announcement that TCB Corp. is establishing a distribution center in Jedburg.
Several speakers said they are hoping a new aerospace manufacturer will plant roots here. Though Boeing was never mentioned by name Wednesday morning, the company has said it is looking at Washington and South Carolina for a second Dreamliner assembly line.
Reach Molly Parker at 843-849-3144.
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