CRE investment gearing up, but analysts don't expect comeback until 2012
Trouble in the commercial real estate sector is not likely to be resolved until the economy picks up and job creation boosts demand for office, retail, hotel and other commercial properties, according to a Standard & Poor's commentary released Monday. Even though the market research firm sees a trough in some CRE subsections, overall improvement isn't expected until at least 2012. "Until the economy becomes more robust, developers will likely continue to struggle to finish and lease their projects, lenders may have to cope with nonperforming CRE loans, and investors face historically high delinquency level on commercial mortgage-backed securities," the report concluded. CRE market problems have already been taking spotlight in the news. Moody's Investors Service reported yesterday that property prices declined for the second straight month in July to less than 1% above the recession low. CRE collateralized debt obligation delinquencies rose in August to 12.1%, according to Fitch Ratings. The record-high for CRE CDO delinquencies is 13%, achieved in January of this year. Trepp analytics firm reported that these types of problems are what is causing many banks to fail, including five of the six reported last weekend. Investment in commercial real estate, however, appears to be on the uptick around the country. Fannie Mae and Freddie Mac recently invested a total of $10 million in CRE in Philadelphia. Walker & Dunlop closed the biggest CRE deal since 2005 with the Department of Housing and Urban Development in late-August, a $162 million deal. And Austin topped Keefe, Bruyette & Woods' survey as the best economy for commercial real estate in the country. "Several commercial real estate loan conduits are gearing up to start origination and have started quoting loans, which is a good thing for the CRE market,” said Malay Bansal, head of portfolio management and advisory for commercial real estate & CMBS at NewOak Capital, an asset management, advisory, and capital markets firm in New York. “In many cases in larger loans, the risk of changes in bond spreads can be borne by the borrower, not the loan originator, in which case the lender does not need to hedge the risk of widening in bond spreads," Bansal added in the written market commentary released Tuesday. "Also, spreads have generally been tightening and the one-sided movement is beneficial to originator and reduces the need for hedging." Write to Christine Ricciardi.