Commercial Real Estate Boom Not Before Early Next Decade

According to a report published by Jones Lang LaSalle Incorporated ((JLL)), a leading real estate investment trust (REIT), the U.S. commercial real estate (CRE) market boom is likely to occur early in the next decade at the earliest.

During the second quarter of 2009, CRE sales were $5.2 billion compared to $30.7 billion in the year-earlier quarter and drastically down from $114.7 billion in the second quarter of 2007. In the first half of 2009, CRE sales were $16 billion -- down 80% year over year, and down 93% compared to the first half of 2007. The decline is primarily due to the credit-constrained market, which has virtually shut down avenues like mortgage lending and other loans essential for real estate sales and refinancing.

The credit crunch has widened the bid-ask spread between buyers and sellers of CRE, which has further caused deal volumes to fall dramatically in the past couple of years. Although lending has started to trickle down, it is mostly concentrated to large capitalized players who have better access to the capital markets. Furthermore, continued job losses have plagued the industry as a whole.

In addition, consumer spending continues to drop across the country due to a global economic meltdown. Under such circumstances, Jones Lang predicts that market recovery is likely to occur by mid-2010, although the boom will take a much longer time, almost a decade. Jones Lang is a leading full-service real estate firm that provides corporate, financial, and investment management services.

The company caters to corporations and other real estate owners, users, and investors worldwide. A broad real estate product and service range, and extensive knowledge of domestic and international real estate markets enable it to operate as a single-source provider of real estate solutions.

Comments

[Mad Hedge F...:]

If that. The vultures are circling the embattled commercial real estateindustry, ready to swoop down and devour the carrion before it’s dead.A trio of REIT IPO’s have hit the market this week looking to buy realestate for pennies on the dollar, as well as the bargain basement debtof other troubled REIT’s. JP Morgan, Citibank and Barclay’s launchedtheir Apollo vehicle (ARI). Bank of America and Morgan Stanley came outwith a new security called Foursquare (FSQU). Not to be outdone, Bankof America, Merrill Lynch, Goldman Sachs, and UBS followed up withtheir Colony (CLNY) instrument. This is a classic example of new equitycoming in and taking ownership of assets where the previous owners havegone to money Heaven. Commercial real estate lending exploded from $1trillion in 1988 to $3.5 trillion in 2007, and some $2 trillion of thathas to be refinanced this year. Takers are few, with banks reeling inleverage ratios, insurance companies gun shy, and the collaterized debtmarkets in intensive care. The TALF is expiring at year end. Did I hearsomeone shout “Bail Out?” Many listed REIT’s will only survive becausetheir rules limited them to mere 2:1 leverage, and were able to raise$16 billion in new equity since March. That has helped propel the DowJones REIT Index ($DJR) up 84% from the lows. More highly leveragedprivate investors and regional and community banks not so constrainedare choking on their holdings, and many are limping on by letting markto market rules fall by the wayside. This is why I am not recommendingbank stocks or REIT’s at these levels. The new vulture issues may beanother story. I was involved in a strategy at Morgan Stanley to Hooverup Houston office buildings on the cheap in the wake of the earlyeighties oil bust. The lucky investors got a tenfold return on their capital.

Sep 25 12:28 PM