Commentary by Peter Giardini | October 21, 2009I was surprised by some of the comments regarding Dr. Doom AKA Nouriel Roubini and his predictions that we are not yet out of the economic woods, and we are most likely going to experience continued turmoil in our economy in general and real estate specifically.
To the point – it seems that everyone is now paying attention to the coming challenges with the commercial mortgage market. And who can blame anyone for thinking that the commercial market is on the edge, and will likely go right over the side in the coming 2 – 3 years.
Using Old Valuations Can Lead to Disaster!
Making this situation worse is the fact that most lenders are valuing the underlying properties collateralizing their mortgages at their original values (just like what is happening with residential properties), further forestalling the pending crisis in bank defaults. If banks revalued their portfolios to the real (current) values of their underlying collateral… it is possible the entire system would collapse. I found an interesting dialogon public radio amongst various experts regarding the pending (actually it has already started) commercial collapse that demonstrates that some people may have their head in the sand.
Commercial Real Estate by Kyle Koller | September 28, 2009Income properties are, to many, the ideal investment. Not only does one receive rental income on a monthly basis, but he also gets to enjoy capital appreciation—or at the very least, a solid hedge against inflation. With favorable tax treatment throughout and available 1031 tax deferred exchanges, one would be silly to not at least consider real estate investment.
And so he does. Hypothetical investor Bob purchases his first income property: an 8-unit multi-family in sunny San Diego, California. He loves the fact that it’s in a great location, has a favorable unit mix, and there has only been one vacancy in the last two years—and that vacancy didn’t last very long. As far as Bob is concerned, he has made the perfect investment. How could he do any better?
Raise the rents!
Typically, investment properties in low-vacancy, heavily renter-occupied housing areas that incur vacancies about as often as the Chicago Cubs win World Series have one problem: their rents are too low. If the rents weren’t below market, they would incur significantly more turnover.
That’s the key word: turnover
Turnover is a good thing; vacancies, themselves, are not. What’s the difference? A vacancy occurs when a unit has been turned (i.e. “rent ready”) and it does not have a tenant, or a prospective tenant. Turnover occurs when someone moves out of a unit and another moves in.
Joshua Dorkin
U.S. Commercial Real Estate At Death’s Door; Next Shoe Ready To Drop
by Charles Feldman | November 3, 2009If there really is an economic recovery underway–no matter how weak–one sure thing that would kill it is a devastating collapse of the commercial real estate market. And, I’m afraid, that is exactly what appears to be shaping up in the not very distant future. A survey by the Real Estate Roundtable (which sounds like [...]