Commercial property values have dropped 36% in the last year alone, according to Moody’s Investors Service and are 44% below the October 2007 peak. This bad news followed the prediction by Grubb & Ellis that office vacancy may approach 20% in 2010.
Foresight Analytics of Oakland, CA estimates that 53% of commercial loans due to mature in the next five years are underwater (valued at more than the property). The total due in that period is $1.4 trillion. Almost 8% of commercial mortgages may become delinquent next year, up from 5.6% for the fourth quarter of 2009. Compare that to the .75% delinquency rate a year ago.
With all this bad news coming at us, many are retreating to the sidelines to await rosier days. But if Baron Rothschild was correct when he said, “Buy when there’s blood in the streets,” this may be a good time to get in. During the Panic of 1871 in Paris, he was buying when everyone else is selling, and I think his family is still doing alright.
Related articles about current conditions in the market:
- Citi’s Commercial Real Estate Problem (blogs.wsj.com)
- Five Minutes In The Mind Of A Commercial Real Estate Broker (agentgenius.com)
- Big borrowers hit by falling values, skimpy lenders (lansner.freedomblogging.com)