Fasten your seatbelts ‘cause its going to be a very bumpy ride!...But we already knew that, didn’t we?

Implications: There have been recessions and commercial real estate bubbles that have burst in the past. The most notable was the 1990's crash. Unfortunately the learning curve for this time around will be an uphill battle for all concerned. The simple reason is no one has had to encountered the multiple credit issues that are so wide spread today, whereby there is no safe haven or easy answer as all manner of business is being affected. This writer had been saying for a long time now, you can not kill the housing market without major repercussions. Add to this toxic mix an entire financial credit system based on securitized debt and we have a problem of magnified proportions the likes we have never witnessed before. Of course there are those cheerleaders that remain in a state of denial whose client’s will be negatively impacted by false hope. Instead of trying to create a game plan or exit strategy, the cheerleaders will be the band playing while the ship is sinking.

Analysis:  The current crisis in the credit markets, which began last summer as a result of the sub-prime mortgage fiasco, has spilled over into the commercial real estate markets.  If any of you thought this might have been short lived you were obviously very wrong and you probably sat around hoping and praying for the best. Well the descent of the commercial real estate market has begun in earnest. As I have said over again, commercial real estate is a lagging indicator of economic events both good and bad. 

As a matter of fact the credit crisis has deepen beyond most experts expectations. Banks have stopped lending for the most part. Not only have they tightened lending on all manner of real estate loans, but in almost every loan product they offer. From car loans to business loans and student loans, they have all been affected. 


Inflation is on the upswing with rising oil/gas prices, and interest rates are no lower than a year ago, they are actually higher. The Federal Reserve has only been propping up the Banking System, not making it easier to get a loan.   

As Commercial Real Estate is especially sensitive to credit markets, this slow down should come as no surprise.  The housing market is still in the throes of a downward spiral with no bottom in sight. And until the housing market hits bottom and starts a sustained albeit less than modest uptick, will there be any loosening in the credit markets.  As a result business has slowed down significantly. 

Consumer spending is on the downswing as reported today now that the temporary economic stimulus checks have been spent, and companies are taking a wait a see attitude. Forget expansion plans, or even considering moving. Companies have begun layoffs which does not bode well for the economy. The number of subleases has increased significantly which puts downward pressure on rents. Rent concessions as the report points out are running above normal and most likely will accelerate to higher values.

All this means we are in a place where most of those in commercial real estate have never been before nor has Wall St, as it pertains to commercial real estate. The most pronounced statement in this report is “An unprecedented number of SIOR members -- 83 percent -- report that their local markets are feeling the impact of the decline in the national economy. This number is 59 percent higher than just one year ago. Leasing activity is down according to 75 percent of respondents.” On top of all this an article written recently in the LA Times titled “Too Big to Fail? We’ll see about that”...is about the enduring memory of the “financial bubble's collapse will be the number of marquee companies either swept away or forced to shrink drastically to survive.”

This means the likes of Fannie Mae and Freddie Mac, along with Bear Stearns, and possibly Lehman, WAMU, and others that have not yet risen to the surface, which are likely to fail or be transformed into something totally different than what they are today. As such this is turning into the largest financial market upheaval since the Great Depression.

And as we know all too well, the commercial real estate market is directly tied to the health of the financial markets. It does not take a prophet to say both the near and long term prospects for commercial real estate is bleak. Therefore, batten down the hatches because the seas are going to become even more angry than they presently are.