Who is kidding who regarding a recovery in commercial real estate

Many so called pundits are still optimistic about commercial real estate making a dramatic recovery in 2010. Nothing could be further from reality

The economic recovery the Government and pundits want us to believe has begun.

Yet there is absolutely no doubt the normal flow of credit is required before any sustained recovery will occur. The flow of credit means investment in small, medium and large businesses which in turn creates jobs or positive employment.

What this article is telling us, the banking system is still broken. Yes Wall St. will get excited about Goldman and some of the other large banks making substantial profits in this environment, however the majority of banks which represent the small and medium ones, are on life support. As anyone in business can attest, getting the simplest loans today is near impossible. The banks are raising their credit card interest rates to cover their losses on existing accounts (How is that for counter intuitive behavior). So what will consumers do...you guessed it, only stick to buying everyday essentials. Already there are articles reporting people are spending less on food purchases. I guess that can help slim the country's obesity rate, but it will also negatively affect consumer spending.

The "Banks" are not going to change their credit behavior as their resources become less and less despite what the FDIC is suggesting. The "Banks" will not return to lending in any shape or manner that will facilitate any real recovery. The Federal Government and the optimistic pundits are trying to pump up the general population's optimism but it will not work when the unemployment rate remains at about 10%.

What this all means is there will be NO recovery for the Commercial Real Estate markets, not withstanding the withering media spin to help the current adminstration look like they know what they are doing.

Commercial real estate industry optimists are falsely believing there is near term relief for the market, especially if the lenders and note holders would only come to their senses about the bid/ask spread of their respective property holdings.

But reality is not a vulture's market, as meaningful recovery will not kick in due to too many lenders playing the pretend and extend game.

However even if the Tsunami of fire sales would occur, how does that help the commercial real estate market? All it will do is move under performing assets to another group of under achieving landlords who will languish for years with high vacancy because tenant demand is not going to come back anytime soon, given the ill health of the current banking system and the lack of desire for "The Banks" to begin  normal lending again. And normal does not mean, lending the way it was between 2003-2007.

Lack of credit means lack of business expansion which means lack of employment...This is what this writer had written about over 2.5 years ago. When the unrestricted flow of credit is cut off, commercial real estate and the rest of the economy will falter. In this "Great Recession" its not only credit on commercial real estate that has stopped flowing, but ALL credit as basically come to a halt.

Robert Canter consults with leading institutions through GLG