Uncertainty still lurks in capital markets
January 27, 2010 | Staff Writer | Print Article | Email this Article
Despite national statistics indicating the economy is on the mend, optimism is in short supply in the commercial real estate industry.
Local industry juggernauts J. Paul Beitler, president of Beitler Real Estate, and Mike Reschke, chairman and CEO The Prime Group, took the stage at Bisnow’s capital markets seminar at the Metropolitan Club in Chicago.
Beitler and Reschke played off of one another like old friends, quick to disagree and always willing to poke a little fun at the other’s expense. Despite the dynamic dialogue, the message was one of caution and uncertainty.
“GPD was down 2.9 percent in 2009 and we lost 8 million jobs,” said Reschke. “It will take five to six years to get those jobs back. That is not encouraging for commercial real estate.”
Both indicated that commercial real estate fundamentals are off-not on the supply side, but on the demand side-and with numerous large loans underwritten in the past 2-3 years figuring in consistent rent increases, it makes for an extremely challenging environment moving forward.
Reschke said that rental rates at the moment are held up artificially by owners who are not currently under pressure to lease space from their lenders. Lenders do not want to take a write-down and are avoiding any processes that would lead to that scenario.
“We are really in a state of limbo,” said Reschke. “As soon as the government forces a foreclosure on just one of these buildings in a major market you will see rental rates tumble 20-to-30 percent.”
Whether a realistic look at market dynamics will bring money back into the industry remains to be seen, but with an estimated $800 billion in commercial real estate loans underwater, it is likely that this will be tested in the coming months.
Reschke said that he was more pessimistic than optimistic about 2010.
“There is a crisis of confidence right now,” said Reschke. “Washington is deciding who wins and who looses. The five largest banks got bigger and stronger at the taxpayers expense, while an estimated 500 small-to-medium sized banks are going to fail in the next few years.”
Tags | Capital Markets, Chicago, finance
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