SAN DIEGO — Credit issues, escalating unemployment and looming uncertainties related to financial and regulatory reform continue to put a damper on the commercial real estate outlook, according to Sam Chandan, Ph.D., global chief economist and executive vice president of Real Capital Analytics (RCA), a keynote speaker at the tenth annual Trigild Lender conference held in San Diego.
The event, themed “Lighting the Tunnel to Recovery,” addressed key industry trends and vital statistics, with respected industry experts exploring hot button issues in the real estate and lending markets.
Chandan, along with nearly 500 financial and commercial real estate industry leaders, convened for the annual conference – the distressed commercial loan industry’s premier symposium for insight on dealing with non-performing loan portfolios. This year’s lineup showcased more than 60 speakers, who examined a series of timely topics ranging from “Tranche Warfare” to “The World as Seen by Loan Servicing Experts” to “How to Deal with Secured Assets.”
“We are at a difficult juncture in real estate markets today,” said Chandan, who is also an adjunct professor of real estate at the Wharton School of the University of Pennsylvania. “The biggest threat to the commercial real estate industry, and the economy overall, is lack of jobs, especially for youth,” he added.
“Unemployment rate remains stubbornly high,” he said. “While U.S. jobs have grown in the hospitality, healthcare and education sectors, there has been no growth in jobs for young people,” he said. “Until this changes, there is low-to-no demand for apartments and homeownership.”
Kevin Donahue, senior vice president of Midland Loan Services, confirmed Chandan’s comments. “ Until we see job growth, there is not a lot of hope,” he said, and revealed this daunting statistic: there are now 6.8 million unemployed, compared to 1.3 million in 2007.
“The good news is that transaction activity is improving,” Chandan said. And although property values have decreased by as much as 44 percent since the peak, prices are slowly improving too.
“We are hopeful price deflation has subsided,” said Clark Rogers, senior vice president of KeyBank Real Estate Capital, and are seeing a “modest pick-up in value in primary markets, secondary and tertiary markets are more uncertain.” The value of assets is “driven up purely by demand for that finite number of assets,” said Chandan, whose company provides commercial real estate performance information and analysis.
Despite some glimmers of hope, most panelists agreed unless the debt markets open, a second wave of distressed commercial real estate is inevitable.
“Our pace of inflowing assets was beginning to flatten out in Q3 (8% increase in Q3 vs. 103% for first six months of 2010), but it may be a false bottom given what we are hearing from our colleagues in CMBS servicing,” said Courtney Boscoe, senior vice president/managing director of Wells Fargo Bank.
Jan Sternin, global managing director of business development of Situs Asset Management, said, “we are still absorbing the assets we received this year and continue to see movement from sub performing to non performing.”
With a formidable number of loans set to mature within the next few years, Page 1 Annual_Trigild_Lender_Conference_In_San_Diego_Attracts_Record_Breaking_Crowd.txt special servicers anticipate a busy schedule. In fact, recent figures reveal that $1.2 trillion in commercial real estate loans will reach maturity between now and 2013.
And while no sector is immune to distress, conference panelists agreed that the hospitality industry is particularly vulnerable. In fact, the value of U.S. hotels has fallen by a staggering 50 percent since the market peaked in 2007. Location matters too — and problems are exacerbated in areas prone to high unemployment. “Distress on the REO side in Florida, Arizona, California and Michigan continues to mount, ” said Boscoe.
The consensus? Tight credit and lack of jobs will continue to hinder the commercial real estate market’s recovery prospects. According to David Nass, managing director of Morgan Stanley, much of the needed de-leveraging of commercial real estate loans lies ahead.
About Trigild Headquartered in San Diego with regional offices throughout the country, Trigild has more than 30 years of expertise in managing a wide array of commercial real estate assets and operating businesses, focusing on turnaround management and repositioning of troubled properties. Specializing in non-performing commercial loans, Trigild combines receivership, operations management, consulting, and disposition services under one roof — for maximum loan recovery. Trigild is located at 12707 High Bluff Drive, Suite 300, San Diego, 92130. For further information, visit www.trigild.com.