5 Issues Affecting Commercial Recovery
According to consultant Deloitte LLP:
- The market remains uncertain. The recovery isn’t following previous trends. While there is some indication that the worst may be over, some markets continue to decline.
- Impact of “amend and extend.” Some banks are recognizing that they will never recover full value on some properties and are willing to work with borrowers. This has made it more difficult to tell when the business has hit bottom.
- High maturities remain a challenge. The high level of maturing debt over the next several years remains a significant barrier to recovery. In addition to commercial mortgage-backed securities (CMBS), loan delinquencies and commercial real estate loan defaults, there is also an increase in strategic defaults as more commercial borrowers make a pragmatic business decision to exit profit-draining investments in order to divert money to performing projects or shareholders.
- The number of deals is increasing. A good sign.
- The economy is recovering very slowly. This increases opportunities in distressed properties, but the overall market isn’t in a hurry to pick up.
Source: Deloitte (12/07/2010)
Beau Beery Comments: Being a practitioner of real estate in Gainesville has its perks. While we may not get to experience the significant highs of some markets, we also don’t have the drastic declines of the less fortunate markets mentioned in bullet point one above. Regarding “amend and extend,” because we don’t have these drastic declines, banks are less willing to offer significant discounts in the pricing of distressed assets in the Gainesville commercial real estate market. Rarely do you see the twenty cents on the dollar deal in Alachua County that you may find in Fort Myers, Florida or Las Vegas, Nevada.
High levels of debt maturities will be an issue in many of the primary markets in Florida, offering up opportunities to development and investment companies like AMJ Inc. of Gainesville to swoop in and pick up value add assets at more secure prices. The number of commercial real estate deals in Gainesville has seen a healthy increase, primarily in the leasing of Class A office space and A location retail centers. Class B and C office properties continue to struggle, having added more square footage and listings to the market for the last seven quarters. While I state there has been a healthy increasing in deals done in 2010, the base from which we started was pretty low in 2009. The Gainesville real estate market could only go up from 2009. While our national economy is in a slow recovery, Gainesville has outpaced many in the recovery efforts with the strength of Shands Hospital, North Florida Regional Hospital, the Veterans Administration, and the University of Florida as a strong economic base to build from.