Tom Lindmark

Commercial Real Estate: Is the Other Shoe About to Drop?

jstratt,

Vacancies and related statistics like sublease space have to be viewed on a local basis. National statistics are close to meaningless. I agree that there will be some bargains. How the commercial properties are sold by the bank or the government will determine how deep the bargain.

The underwriting problem with CRE was that investors overpaid and lenders justified the debt by accepting proforma rent projections that never had a chance of being realized. Too much leverage was employed and the going-in operating cash short fall was carried by interest reserves. Operating cash flow has no chance of ever achieving projected levels so you just wait for the interest reserve to run out and then it's hand back the keys time.

Playing the Market as Delinquencies Continue to Rise

Of course, we don't know when or if the SEC might decide to float another short sale rule and blow the whole strategy up. Too much chance of government interference with the markets at this point to be taking excessive risk.