Commercial Real Estate Frontline

Mark Heschmeyer a well known widely read writer for CoStar sent the following email out to his readership today:

What a two weeks it has been in the financial markets with the takeovers of Fannie Mae, Freddie Mac, Merrill Lynch and the troubles at AIG and Lehman, to name a few. Truth be told it is too overwhelming to try to wrap up in one story…

but there is obvious concern in the commercial real estate markets about what it all means. That’s where I am asking for your input.

What is the immediate impact on the commercial real estate markets?

What is the longer-term impact?

Will capital remain constricted as long as major institutions are at risk?

Will the troubles of Wall Street spill over into “Main Steet” America?

I apologize in advance for the late notice for this call for comments. I will be writing up the story Wednesday Sept 17 with a deadline of 2 pm. If you could take a few minutes to comment this evening or this morning, I would appreciate it.

Thanks in advance.

Mark Heschmeyer
Senior News Editor
CoStar Group

I responded.

The immediate impact is that cap rates will continue to decompress and at the same time vacancies will likely increase (with the exception of multifamily) and this will further devalue the properties. Moreover the continuing liquidity crisis will reduce the number of buyers capable of investing in commercial real estate, this will also contribute to sliding values.

Longer term, over the next 4 to 5 years, many of the transactions that were consummated during the peak will have their notes come due. Assuming that there isn’t some wild liquidity rebound many of these notes will not be able to be refinanced. New equity will be required or else defaults will increase.

Capital is likely to be tight for an extended period.

Wall Street troubles will spill onto Main Street as retirement funds are reduced and job losses increase (therefore increased office vacancy and reduced retail activity are almost certain).

Mark’s column comes out on Thursdays. It will be interesting to see what the rest of the commercial real estate community thinks.

What do YOU think? Make your comments right here.