Commercial Real Estate ‘Crisis’ Looming for U.S.
By David Wilson
bloomberg.com
Nov. 11 (Bloomberg) -- “A crisis of unprecedented proportions is approaching” 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.
“Much of the debt is likely worth about 50 percent of par, or less,” 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 Chiang’s monthly review of the state’s finances. |
