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A Bottom???? January 20, 2010

Posted by Erik Swanson in Retail News.

Yesterday, an interesting article in the Wall Street Journal pointed out that some experts believe that the CRE market has stabilized and in some areas even shown signs of slight recovery.  See the complete article here.  Any good news is welcome, but many of us believe there’s further to fall.  This paragraph from the WSJ article sums it up nicely:

Stabilization in property values would be a huge relief to the commercial real-estate market because it raises hopes that investors may start putting money into the sector again.  To be sure, even if property prices have stopped tumbling, a vast number of commercial buildings will remain underwater, which means their loans are worth more than the property’s value. That troubled debt totals hundreds of billions of dollars and sits like a time bomb on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors.

As you can see from our local market research presented in our earlier posts below that transaction volume is so low that finding comps to pinpoint values is challenging. And it’s hard to imagine we are at the bottom of the market when lenders have yet to deal with the billions of $ in bad loans and continue to play the  ‘extend and pretend’ game.  How can a market find its equilibrium before these assets are somehow cleared from their books?

Yet we’re encouraged in the first few weeks of the year. Locally there are good signs that buyer interest has begun to accelerate. Cash heavy investors who have been sitting on the sidelines are showing signs of getting back into the game…or at least they’ve begun shopping.



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