As the commercial real estate market trudges down the road to recovery, continued stabilization has become increasingly dependent on the re-pricing and deleveraging of property positions, the ""CCIM Institute"":http://www.ccim.com/ and the ""Real Estate Research Corporation"":http://research.rerc.com/ (RERC) reported Tuesday.
[IMAGE]According to the report, the commercial real estate recovery is now less contingent on access to capital, given that liquidity has returned to many markets. In fact, it is in some cases scarily reminiscent of the pre-credit crisis capital market environment, the CCIM Institute and RERC said.
""The money is there,"" said Richard Juge, 2010 president of the Chicago-based CCIM Institute. ""It's a re-pricing and deleveraging issue versus a liquidity issue.""
Juge said capital is being invested in commercial real estate assets that have been re-priced to a level that makes sense and with sufficient deleveraging, meaning there's not too much of a loan above the value of the asset. He said large institutions and other investors have been able to re-price their assets down by 40 percent to 50 percent while still maintaining a positive equity position.
Given the amount of liquidity in the market and the ability of lenders to re-price assets at a level that will clear the market, Ken Riggs, chief real estate economist for the CCIM institute, believes the process of refinancing debt will be at a more measured pace than most predict. He said this process will serve as a guiding hand out of the commercial real estate recession.
""I don't see this huge onslaught where large volumes of distressed assets are placed in the market and the supply of properties at distressed levels overwhelms the investment demand side,"" said Riggs, who is also president and CEO of Chicago-based RERC. ""There's equity sitting on the sidelines now, waiting for this to play out.""
According to Riggs, the process will be very selective, with some banks and insurance companies taking back properties and leaving them on the balance sheet. He said these properties will be taken to market when the time is right and when the pricing can be property achieved. While Riggs believes this will be a ""slow, arduous, and challenging process,"" he said he doesn't see it as being catastrophic or disruptive to the current recovery.
The CCIM Institute and RERC said the industry is at a stabilization point with commercial property becoming attractive on a relative basis and getting the attention of many diverse investors.
""We are starting to get traction. The recovery is becoming real,"" Juge said. ""While it's still not as attractive as it was in 2006 and 2007, commercial real estate came into this recession in better shape than it had in the past with less building than in other downturns. If you put that in context, there is equity that wants to invest in the market. It's a question of re-pricing.""