Distressed Commercial Real Estate by the Numbers
August 14, 2009
I recently attended a webinar sponsored by the National Association of Realtors. This particular program was the quarterly Commercial Real Estate Update. The program centered on the commercial real estate market and was presented by George Ratiu, a NAR economist. Mr. Ratiu discussed current market conditions, investment trends and financing issues, as well as look to the future regarding the commercial market sectors.
The scary part of the presentation was when Mr. Ratiu presented a slide on the amount of commercial real estate in “distress” (defined as foreclosed, REO, or delinquent properties). In January 2009, loans labeled distressed were estimated at $52 billion. As of June of this year, that amount had risen to $108 billion, a 107% increase in six months. Of this amount, the retail sector leads the pack at around $17.8 billion with hotels coming in second at $11.8 billion.
Another slide showed the concentration of this commercial loan distress by lender. Most of the carnage will be shared by the CMBS market and Wall Street firms especially in the retail sector. In the hotel sector, most of the loans were provided by Wall Street firms (39%).
Another serious concern is the vast amount of commercial loans that will be coming due within the next few years. While the current amount coming due (2008/2009) is around $400 billion, future maturities take a dramatic turn upward to $500 billion in 2010 and $1.8 TRILLON in 2012.
These loan maturities will become even more of a concern in future years due to the drop-off in the amount of new CMBS issuances. In 2007, it is estimated that the U.S. CMBS market issued around 25.6% of all commercial loans or around $230 billion. In 2008, that number diminished to just $12 billion. So far in 2009, there have been NOU.S CMBS issuances.
The continuing problem for commercial real estate investors is the complete lack of any financing to replace these loans over the coming years and the resulting spiral of foreclosures, REOs and workouts that will plague the market for years to come.
The Alliance Group specializes in helping commercial real estate investors deal with these issues. We can develop the step strategies, create action plans to immediately reduce losses and identify opportunities to add value for both owners and lenders.