Commercial Vacancies On The Rise, Lenders' Crisis Looms

Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.

With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market "since the wrenching 1991-1992 industry depression."

Banks and other financial companies have not had the problems with commercial properties in this recession that they have had with residential properties. But many building owners, while struggling with more vacancies and less rental income, will need to refinance commercial mortgages this year.

Read the whole story here.

Comments

[Joseroncal]

The number of overdue commercial construction loans is on the rise, which portends a rise in defaults. In the third quarter of 2008, overdue loans had quadrupled from two years earlier for the same period, according to Federal Reserve data. That’s the highest spike since 1994.

Even though the downturn in the commercial real estate hasn’t been as dramatic or as headline grabbing as pictures of homeowners sent packing, commercial defaults could deepen and prolong the recession. Moody's Economy.com estimates that commercial real estate losses could slice about $30 billion from our economic growth this year.

Many in the construction industry are pushing Congress to approve President Obama's proposed stimulus plan to revive the economy and pour hundreds of billions of dollars into rebuilding the infrastructure. It could be enough to keep developers, construction workers, architects, engineers, heavy equipment manufactures and staff members employed and supplied with spending cash until the economy recovers.

But will Obama’s plan succeed in reviving the economy and boosting consumer confidence? If things go according to plan, construction firms might be able to turn their attention to public works projects like bridges, roads and schools. When you consider the huge budget shortfalls of many states and municipalities, there appears to be a sizable backlog of projects in need of funding.

This comment was posted by Jose Roncal, co-author of "The Big Gamble: Are You Investing or Speculating?" - For more information, visit www.financialspeculation.com

[Sundialsvc4]

"Oh, Uncle Sugar... over here, please. We need more MO-NEE, too."

Why don't we just simplify things? Let's stop trying to have an economy... let's just let Uncle Sugar take care of everyone and everything.

Remember, don't do SQUAT for the people who might want to set up businesses in those buildings. Don't do SQUAT to forgive or refinance a single dollar of anyone's debt... who cares if they're homeless? Go straight for Uncle Sugar's Bottomless Wallet.

Alas, some things in nature seem to be doomed to "take their course," and this appears to be one of them. We do have to repeat the mistakes of the German Wiemar Republic days ... they sure were halcyon days of "endless money," now were they not? ... before we realize that the troubles of a national economy, though they show-up clearly on balance books, cannot be solved by those books.

[aweissnet]

And yet another large domino begins to fall ....

[BobSF94117]

It seems to me that one of the biggest differences between our economy and that of the Great Depression is the ownership of commercial property. Back then, most companies were located in buildings they owned. Tough times hit, you hunkered down. Tough times hit now and you lose your lease and your business...

[aweissnet]

Yes, another reason we won't fare so well this time. This fall will be unprecedented.

[levelshot]

finally the second iceberg emerges. Caution - Poke your head beneath the surface of the water to see what awaits beneath at your own risk.

[Sundialsvc4]

Nowhere in any of this do I see banks being forced to ... sit down and negotiate, HARD, with their debtors. Residential, Commercial, or otherwise.

They don't want to do that, because they already packaged-up and sold those debts, as "mortgage backed securities" and other artful "derivatives." They don't want to face the music. But they don't mind if their customers are ruined, as long as "Uncle Sugar" sweeps in to bail out their ledger-books.

Example of what needs to be done? Easy. You've got a homeowner who owes $400,000 on his mortgage, but his house is appraised at no more than $200,000. You know he's gonna walk. You hope he doesn't set fire to the building as he leaves. Right now, who's out the money? Uh huh, Mister Banker, that would be YOU.

Oh no, not the homeowner. He's gonna walk. "You can whistle for it," and no matter how long and hard you "whistle," that dog will never come home.

Alternative? Oh yeah, sure. Turn to Uncle Sugar to pay you $200K or better yet, $400K and, from your point of view, "the debtor can go to hull."

Better: "you made the bed, you lie in it." Forgive half the debt. He now owes $180K on a $200K asset. You "lost" $220K which wasn't collectible anyway; now he's got equity again. He decides to stay. He keeps making payments. You avoided losing $180K more, and the house isn't a pile of burned timbers.

[Peter007]

Don't ever feel sorry for people that own lots of commercial real estate. Especially in Manhattan.
I wish I had those problems.

[happycat]

oh really?

[philosopherkingtomas]

lower your prices !
the took the risk and they lost for the time being, way too much speculative construction and they investors lost, boo ooo hoo!

[LINY516]

I agree. There has been too much construction for too long. I only hope some of those useless building will be converted into affordable housing or torn down completely for green space. Those new buildings are all too often just eye sores.

[BPCentrisAmerican]

The housing bubble drove up rents for commercial space, in many cases triple at lease renewal time, now the property is worth less and customers are fewer.

[KillTheMessenger]

Vacancy rates have been high for the better part of a decade (certainly since the bubble burst in 2000). Instead of scaling back construction, commercial developers have been building like crazy. If I step out of my building and walk a couple hundred yards I can see a million empty square feet. They were empty since 2000 and they will stay empty until somebody finally tears these useless buildings down.

No big deal.

[aweissnet]

Sounds like potential housing for the homeless.

[readmewell22]

Hey folks, there is new commercial space in Baghdad, $700 Million dollars worth... Out fleaping rageous! Wrong focus, failed bush policies, as a result, America's money here is drying up! This is just the beginning of our new third world country!

[Realtor n VA]

Welcome to my world!

[BPCentrisAmerican]

There is plenty of new commercial space in Baghdad, $700 million worth.

[readmewell22]

Exactly, out freaking ragous... the idea of that much spent in another country... It blows the mind to bits!

[readmewell22]

Well stated, new commercial space in Baghdad, out fleaping rageous! Wrong focus, failed bush policies, as a result, America's money here is drying up!

[BPCentrisAmerican]

Money dries up quickly in a sand pit, a reality pro-Iraq war republicans just don't get. They think that the huge exspanese of this enterprise dosen't need to be payed for. At the end of the day do you think there is 3 trillon dollors worth of oil under Iraq and who's going to get it?

[happycat]

On the Upper East Side of Manhattan where I live, it is becoming an out of business waste land. It is becoming a regular occurance where one day a shop or a restaurant is open for business, and the next day it is closed permanently. It is a stomach ache!

[tomas0808]

Well those Manhattan prices are simply absurd. 2000/month for a cramped sudio apartment? God had to do something to bring them back down. NYC used to be cool, when some real people lived there, not just the rich or the ones with good jobs pretending to be rich

[happycat]

I totally agree with you. I remember moving into my first apt. here in 1995, a studio for $800 a month. It was not a bargain, but it was doable. I moved out b/c the owner was selling it for $40,000. I thought that was too much, now I am kicking myself! Many of my friends have had to move out of the city since they had kids. The cost is prohibitive for most families. Now there is mostly drecky hedge fund people and investment bankers. Yuck.

[Erdgeist]

The alarming rise in commercial vacancies is a reaction to a far greater problem. The problem has been since 1973 "free-trade" which was designed to benefit corporations -- not the nation -- by off-shoring and labor arbitraging which, as a consequence, served to decimate the American middle-class in terms of "real wages". What drives the economy is the middle class. This is only the beginning of America's downfall no thanks to the greed of corporate America.

[doubtingdavid]

And Bill Clinton who sign the misearable peice of toilet paper!

[RTIII]

Bill didn't help, but he was FAR from alone. The only good president we've had since 1970 was -cough-cough- Carter, and that aint say'n much. 'Course, Bill wasn't all bad and he had 6 years of Rs breathing down his neck - and 2 years of D infighting.
.

[FreedomCorpse]

govt economic and trade policy.....doing what it does best...bankrupt