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Defaults Continue to Plague Commercial Real Estate Market

Although government-approved programs and bailouts are in place for many sectors of the battered economy, the resources and solutions for property owners and investors in the heavily-distressed commercial real estate market are lacking.


""Not since the early 1990s have we observed this perfect storm of deteriorating rents and occupancies, deflating sales prices, and tight credit that's leading to a lot of defaults,"" said Victor Calanog, director of research at ""Reis"":http://www.reis.com/index.cfm, a New York-based real estate research organization. ""With close to $3.5 trillion of loans outstanding and at least 12 to 24 more months of rent declines, I expect to see more commercial properties defaulting on loans.""

According to ""Guardian Solutions"":http://www.guardiansolutions.org/, a Florida-based commercial loan restructuring company, help is available to commercial property owners, but it is not widely known about. As a result, the company said commercial properties continue to face foreclosure, and commercial real estate is expected to remain a drag on the U.S. economy through 2010 and beyond.

""We are seeing more commercial mortgages in distress every week,"" said Ira J. Friedman, COO of Guardian Solutions. ""Corroborating our own findings, we recently received a report from the nation's largest real estate researcher, Trepp; they found that delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent, and that figure is up from 4.8 percent a month earlier.""

In an emerging trends report this month with consultant ""PricewaterhouseCoopers"":http://www.pwc.com/us/en/index.jhtml, the ""Urban Land Institute"":http://www.uli.org/ said respondents to its survey predicted that commercial real estate vacancies will continue to increase, and rents will decrease across all property sectors before the market hits bottom in 2010. In addition, respondents projected value declines of 40 percent to 50 percent off 2007 market peaks.

As more commercial real estate property owners see tenants go bankrupt, downsize, or invoke escape clauses, they continue to feel the serious effects of the economy, Guardian Solutions said. The national vacancy rate is expected to reach 19 percent by the end of 2010, the highest recorded since 1986, the company noted. Without paying tenants, commercial property owners have little cash flow to make impending balloon payments and may face foreclosure.

""Based on my experience, the worst thing that a property owner can do now is to ignore his situation and hope that things get better,"" Friedman said. ""Commercial property owners need to know that they can take steps to improve their situation and seek help and guidance while the situation is still salvageable; the longer they wait to take action, the more precarious their situation becomes.""

About Author: Brittany Dunn


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