Slow motion crash

The commercial real estate markets are like one of the last cars in a chain reaction highway pile-up. We hear the noise up ahead, the red lights in front start shining in drawn out succession, we put on the brakes too, but we are too close and traveling too fast to avoid the crack up. Right now we are at that point of suspended animation where time seems to stretch out before the inevitable crack up.

Remember a year ago when it was just the housing markets that faced trouble — that was the first collision, followed by the subprime mess, which took out several cars including the mortgage banks, followed by writedowns at the major investment banks, the Bear Stearns collapse, Lehman’s troubles, various CEO ousters, and now more writedowns. Wall Street inexorably axes lots of execs and all the banks downsize — its hard to get a fix on how many jobs, but the number of resumes flying around gets thick like ticker tape. The first real estate casualties were the dealmakers, who bought at frothy highs last spring, and the lenders who blindly bankrolled them. Hotels and malls start to feel the pinch of the economic downturn. Cap rates have edged up, as predicted, and now it’s about time we see net operating incomes start to shrink as vacancies increase and tenant demand diminishes.