The commercial real estate markets are like one of the last carsin a chain reaction highway pile-up. We hear the noise up ahead,the red lights in front start shining in drawn out succession, weput on the brakes too, but we are too close and traveling too fastto avoid the crack up. Right now we are at that point of suspendedanimation where time seems to stretch out before the inevitablecrack up.
Remember a year ago when it was just the housing markets thatfaced trouble -- that was the first collision, followed by thesubprime mess, which took out several cars including the mortgagebanks, followed by writedowns at the major investment banks, theBear Stearns collapse, Lehman's troubles, various CEO ousters, andnow more writedowns. Wall Street inexorably axes lots of execs andall the banks downsize -- its hard to get a fix on how many jobs,but the number of resumes flying around gets thick like tickertape. The first real estate casualties were the dealmakers, whobought at frothy highs last spring, and the lenders who blindlybankrolled them. Hotels and malls start to feel the pinch of theeconomic downturn. Cap rates have edged up, as predicted, and nowit's about time we see net operating incomes start to shrink asvacancies increase and tenant demand diminishes.
Today, the commercial property transaction markets resemblehousing circa late 2006 when sellers thought they could still gettop dollar and buyers were waiting for prices to fall. There's atransactional bid/ask disconnect and deals aren't happening. Buyersnow get more certain that a fall is coming, and some sellers getmore motivated. Once sellers capitulate, market values will startto track down and the correction will take hold. Then we'll startto see defaults and foreclosures bump up too.
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