http://www.bloomberg.com/apps/news?pid=20601109&sid=atReshofT51c&pos=15 Commercial Real Estate âCrisisâ Looming for U.S.: Chart of Day Share Business ExchangeTwitterFacebook| Email | Print | A A A By David Wilson Nov. 11 (Bloomberg) -- âA crisis of unprecedented proportions is approachingâ in the U.S. commercial real-estate market, according to Randall Zisler, chief executive officer of Zisler Capital Partners LLC. The CHART OF THE DAY displays quarterly returns on commercial property -- apartment buildings, hotels, industrial sites, offices and stores -- as compiled by the National Council of Real Estate Investment Fiduciaries. Returns were negative for the past five quarters, the longest streak since 1992. Property prices have fallen by 30 percent to 50 percent from their peaks, Zisler estimated yesterday in a report. The plunge has wiped out the equity in most real-estate deals that relied on debt financing since 2005, he wrote. Zisler, whose firm focuses on real-estate investment, estimated that building owners will default on $500 billion to $750 billion of mortgage debt. This equals as much as 54 percent of the $1.4 trillion in loans that will come due in four years, by his count. âMuch of the debt is likely worth about 50 percent of par, or less,â the report said. Many banks will end up insolvent as they reduce the value of their holdings, he wrote, adding that regional and community lenders are especially vulnerable. California, in particular, is experiencing a downward spiral in commercial property as prices decline and a growing number of tenants default, Zisler wrote. His analysis was included in Controller John Chiangâs monthly review of the stateâs finances. (To save a copy of the chart, click here.) To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net Last Updated: November 11, 2009 11:11 EST
IYR has doubled from it's March low http://finance.yahoo.com/echarts?s=...on;ohlcvalues=0;logscale=off;source=undefined --------------------------- I'm not in the "next great depression" camp like BLSH, but I've noticed a ton of empty commercial space at the nearby malls, strip malls, and stand alone highway retail spaces. I don't see how anyone could be buying the IYR right now.
It's just beginning. National tenants in commercial buildings are asking for and receiving 5o% rent abatements; this on buildings that were constructed at the peak of the bubble, with bubble construction prices and bubble land prices. In 2000, 5.5% of commercial mortgages were 0 down, interest only (during the ARM initial period), and by 2005, nearly 60% were zero down, interest only mortgages. With the rent concessions being offered to keep tenants, the numbers for the developer (or bank, if the property is foreclosed upon) can't possible work, given their costs of land acquisition and construction. Finally, there's WAY too much capacity in commercial real estate, and the crash in residential structures makes previously viable commercial deals turn sour, as not enough rooftops have been added (or will be) to make many of these properties remotely break even, let alone profitable (think Phoenix).