Carolyn Maloney, joint economic committee chairwoman of congress was quoted as she exited a committee hearing last week that commercial real estate is a “ticking time bomb”.Following that comment, multiple news sources including the AP, the Washington Post, Reuters, CNBC, and Bloomberg starting reporting bad news in the commercial real estate industry.
One question many people may be asking upon hearing this news or even just reading the headline is “How can commercial real estate be a ticking time bomb when we’re already more than two years into the sector’s decline?”Well the answer isn’t as simple as looking at the facts and figures. The June store sales data released several weeks ago shows that overall sales came in down between 4.3 and 5.1 percent.Also recently released was a report showing regional mall vacancies hitting 17-year highs.A real estate analysis company, Capital Analytics shows that commercial real estate worth about $108 billion is now defaulting.
The problem facing the industry right now is that much of the real estate needs to be refinanced in the next few years.That will prove to be extremely difficult in the current economy.In lieu of traditional sources of funding such as commercial banks, life insurance companies, etc. commercial real estate owners will need to start turning to government programs that have been put into place including the “TALF” and the “PPIP”.
The commercial real estate market is certainly a mess right now, and it’s safe to assume the defaults, foreclosures and delinquencies are only going to increase in the near future before anything gets better. It’ll be interesting to see the future of commercial real estate and whether or not the government will ultimately need to bail out yet another industry.
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