The commercial real estate industry faces a dismal forecast for the next 5 years. Nationally, 2010 looks like an unavoidable tsunami of foreclosures and short sales for a multitude of borrowers, investors, and lenders – are the reports from the mainstream media.
Each year through 2015, there will be $250 billion to $300 billion in loans that will come due on office buildings, malls, shopping centers, Multi-family Apartment Buildings, Manufacturing Facilities, Warehouses, Self Storage and other commercial properties, according to PriceWaterhouseCoopers, a New York-based professional services company.
Scarce capital, high vacancies, declining rents and sluggish job growth will continue to place stress on the commercial sector all across the country. Although there will be spurts of positive activity, it may take until 2012 for a sustainable recovery to take hold in this country.
However, with adversity, comes opportunity. These less than positive predictions and negative economic conditions could create the opportunity of a lifetime for investors this year and next. The values of commercial real estate are at all-time cyclical lows, presenting one of the best acquisition environments this country has ever seen.
Not to get over excited – as not all notes coming due will default – some investors will be successful in refinancing. Others will find buyers and avoid default, and still others will work with lenders on short sales. And certainly, there will be investors who will buy foreclosed and bank-owned properties that lenders put back on the market at bargain prices.
PriceWaterhouseCoopers also projects commercial property foreclosures to accelerate across the nation. To build up their loss reserves, financial institutions delayed “dropping the hammer” on distressed borrowers. Now, due to government bailouts, they are ready to take action.
Due to higher vacancies and falling rents, the nation's commercial property values are starting to reflect deteriorating financial performance in some areas of the country. Problems with maturing debt, specifically again, the inability to secure financing, will cause a surge in defaults by some investors.
As a result, loan defaults will continue and in some cases increase at a dizzying pace this year. We can also expect the number of bank-owned and short sale opportunities to be abundant throughout the next 2 years. Although this is an unfortunate situation for the distressed owners who are being forced to dispose of these properties, or have lost them in a short sale or foreclosure, it will bring a tidal wave of opportunities for investors who will play a major role in this correction.
These “Well-Financed” and “Well Funded” investors are going to be snapping up these bargain-priced, bank-owned, and commercial short sale opportunities. The way we see it, property prices will likely continue to decline through 2010 even as sales of buildings increase. This is in large part due to the # of distressed properties being sold at depressed values, and the new and more conservative commercial underwriting guidelines that lenders are now using to value these commercial assets.
The Good news is that this may be the best time since the Great Depression for the savvy commercial investor to take advantage of the current conditions. And we all know, more millionaires were made during the Great Depression than any other time in our nation's history, and they did this with Commercial Real Estate! And as Commercial Real Estate investors focusing on the Self Storage Sector, this is music to our ears!
The road to recovery begins now! Are you ready to take advantage?
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