When will the Commercial Real Estate Market Recover? Are you Kidding Me?!
I recently commented on a blog post on LoopNet. This was the Q4 Poll on the Current State of the State of CRE. http://blog.loopnet.com/2009/10/q4-poll-results-when-will-market.html
I wanted to share my comments here as I would like to start a discussion that may help us figure out what we are doing and where we might be headed going forward. I used to love to watch CNBC as the market was up for a day we were told that we were in recovery Yeah! and then the market dumped for a couple of days and all you heard was doom and gloom. Do they really have that short term a memory or are they really that reactive? News has become entertainment and if you tell the same story every day then you will be boring and probably won’t last to long on the show.
I recently saw David Rosenberg, chief economist and strategist at Gluskin Sheff and believe he has a real handle on the state of the state. Here is a video I found from him. Not the one I saw. http://www.cnbc.com/id/15840232?video=1174036163&play=1
Here is my rant:
What would a recovery in 2010 or 2011 be based on? Most I talk to base the recovery on a hope of recovery, not any real data.
CMBS will be coming due up till 2015, Double digit unemployment, the fed is holding distressed properties off the market indefinately, banks are still failing. The dollar is at all time low as trillions were printed for the bailout. GDP figures (un-incentivised) was flat and even if we could sustain 3% growth, this did not help Japan over the last 20 years.
We are doing a great job of keeping ourselves in the comfort zone and pushing the inevitable into the future, but are we really in recovery or headed toward recovery. I think not.
There are hundreds of billions in committed funds waiting to pick up distressed properties or non-performing notes (Check out RIISnet.com), but REO’s in commercial real estate and residential are not being released in any bulk.
I believe the recent stock market climbs are all based on smoke and mirrors for the most part. If you have been in the market you will have to agree it has been substantially bullish in some sectors, but this cannot last. I believe there is no V recovery or U recovery, but more a a W.
The obstacles to more transactions are mainly based on debt financing, this I believe. Also the market is still having a real hard time pricing itself and cash flow assumptions are very hard to make, but there is money out there and plenty of it for both unstable and stable assets. The problem is that letting go of current properties will result in losses to the owners; be it the private owner or the bank. And no one is ready to take the loss yet, but this too shall pass and if I am right this does not spell recovery. Let’s not forget about the shadow market in residential that will or is affecting Multi-Family in some locations.
Not a doom and gloomer, just a realist. Hope I am wrong, but my partners and I have started a Distressed Assets Association in alliance with RISSnet and their ARGUS Software ADAPT Platform to try and help the market work out the distressed properties and notes. Our association hopes to be an information source that can make sense of the markets and possibities for recovery.
JW Najarian
Co-Founder
CRE Distressed Assets Association
http://www.CREDAA.com
Founder
CRE Professional Investor Group
http://www.CREPIG.com
