Commercial Real Estate Is NOT Collapsing

What's causing the slow motion commercial real estate crash?

Definition of collapse:
[kuh-laps] verb, -lapsed, -laps-ing, noun
–verb (used without object)

Number 1 definition: to fall or cave in; crumble suddenly
e.g. "The roof collapsed and buried the crowd. "

Commercial real estate is not collapsing sounds like a crazy claim to make at this point in time, but I'm not convinced that it has collapsed. The meaning of the word collapse has a strong connotation to me. It bears the feeling of imminent and dangerous events. I feel that a 'collapse' in an industry means that it has been decimated if not outright destroyed. If the roof collapses, you'd expect to see bodies in the wreckage at worst, or a tangled mess of scrap at best. Strangely, I don't see that in this industry yet. As the article above alludes, the current commercial real estate meltdown is a 'slow motion collapse'.

Can there be such a thing? Perhaps, and I'm just spitballing here, but perhaps there isn't a collapse in commercial real estate.


Maybe, just maybe, the economy was starting to look up and the media needed something nasty to report on. Could it be that opportunistic institutional investors latched onto this idea as a way to affect the market by driving prices down? Now, before you jump in and start calling me nasty names, no, I don't have my head in the sand and, yes, I can plainly see the size of refinancing and restructuring of debt that will need to take place in the next couple of years across North America (particularly in the US).

Activity in the commercial market has all but died in some areas, but others are starting to see some light at the end of the tunnel.

From the article above:

Even as the sector continues to struggle, capital has been flowing in searching for opportunities. In recent weeks, hotel chain Hyatt, mortgage modification ship Pennymac, and commercial REIT Starwood Properties Trust, have all filed for IPOs.
One possible area of upside for commercial real estate, ironically, comes from the struggles in residential real estate. "The flavor-of-the-month asset is multi-family properties," Malka said. "With all the problems in the residential market, people are running back to apartments and renting," making for a favorable situation...
Some of our clients are actively looking for new opportunities again. Particularly properties that have long term upside and that are considered risky right now. Properties like small and medium strips, and locations in secondary markets are risky, but the long term rewards are high.

A Return to Business?

There was a long period when everyone seemed to be holding their collective breath, but I see a slow return to business happening. I don't see a collapse so much as a group head-scratch and a refocusing of direction with a healthy dose of reality.

What are you experiencing? How have you or your clients been reacting to the market?


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