KPLU Local News
(2009-12-02)
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SEATTLE, WA
(KPLU) -
2010 will be a very tough year for commercial real estate. Prices are expected to hit bottom, creating the biggest challenges the sector has seen in generations. That means for certain players there will also be huge opportunities.
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It will be a year marked by the survival of the fittest - only the strongest developers and investors will be left standing. That was the upshot of a forecast panel presented by the Urban Land Institute in Seattle. Researcher Dean Schwanke delivered a sobering keynote. He says next year is when many creatively financed five-year deals that were brokered at the height of the market will start coming due.
"So that's a whole lot of mortgages that have to be refinanced. And how they get refinanced is the problem that's out there. No one knows where the money is coming from. Most of these deals are underwater or have little or no equity in them and the lender's not going to give you an 80 percent loan anymore. They're going to give you a 60 percent loan."
He calls mortgage backed securities the sector's Frankenstein monster. Some banks will extend the terms of their loans for longer. But many will have to repossess properties.
This is music to the ears of investors who've been waiting on the sidelines with cash. Jim Neal is an executive with Metzler North America who recently left his job as CEO to focus on creating a new private equity fund for his bank.
"It's going to provide fantastic opportunities to buy high-quality real estate at very, very good values. It's something that we probably haven't seen for the better part of 30 or 40 years."
Neal is one of many private equity investors who are expected to get into the market next year - when banks start dumping properties and prices are expected to go down. Seattle commercial real estate consultant Matthew Gardner says he has been fielding inquiries from funds in New York and Boston.
"I don't think we're quite there yet in terms of the distress values. But I'm certainly seeing a lot of companies that are looking into the Northwest and certainly Seattle as areas that could have a very positive upside."
Those clients believe Seattle will recover sooner than many other urban areas in the U.S. Gardener says some residential projects are already coming out of the downturn. There's also pent up demand for industrial parcels. But things like office blocks and retail spaces - especially in suburban areas - are expected to hit rock bottom next year.
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