Tough Times on Horizon for Commercial Real Estate –
During the “Looking Ahead” panel, moderated by Kevin Donahue, senior vice president with Midland Loan Services in Overland Park, Kansas, panelists concluded that while commercial real estate has not been overbuilt like residential, there are looming problems in this arena as well.
Commercial defaults are steadily increasing, which is not a big surprise to the experts. “This is what we expected,” said David Innarone, managing director of CW Capital.
“The system is fragile,” added panelist Clark Rogers,senior vice president of KeyBank Real Estate Capital in Kansas City, Mo., especially when you add on excessive risk taking and the lax oversight which created the situation.
And things will get bad before they get worse. “This is just the beginning,” said Thomas Deane, head of structured transactions and special services for Wachovia Securities.
“Commercial real estate debt is at an historic high,” said Chandan. “Some commercial loans were based on inflated earnings which turned out to be too optimistic,” said panelist Hoffman, president of San Diego-based Trigild.
There is just no exit strategy for these bad loans, and no way to address the rising tide of delinquencies and defaults. “Because of the difficulty in obtaining financing, more and more projects are coming out of the pipeline.”