After nearly two years of waiting, watching and hoping, American commercial real estate is finally regaining strength. This is one conclusion of the Reuters Global Real Estate and Infrastructure Summit held recently in New York City. Starting in the fall of 2008, real estate investors feared there would be a wide-ranging sell-off of debt-laden commercial properties after Lehman Brothers collapsed. And while office building and other commercial property values have fallen since the capital markets froze, the anticipated spate of foreclosures has not come to pass. According to James Koster, president of Jones Lang LaSalle’s capital markets group, that is now unlikely to happen.
“We should be in a relatively good position to not have this other shoe drop,” according to Koster. Banks have extended, restructured and modified loans to give the real estate industry the opportunity to regroup. Values also are on the rise once again, although some properties whose loans were securitized are troubled. The percentage of CMBS loans that are a month late in making payments climbed to 8.42 percent in May, according to Trepp, which follows CMBS performance. Koster notes that special servicers who oversee troubled loans are not selling the properties at bargain basement prices. Rather, they are holding onto them and being paid for managing them.
Institutional investors and REITs have the money to purchase good but debt-laden real estate. When those properties hit the market, their price tags will be higher than two years ago. “There is fresh capital coming in. It’s a better market now,” Koster concluded.