Worries Grow Over Commercial Real Estate

Investor's Business Daily (10/14/08) P. A1; Alva, Marilyn
Aggressive commercial property buyers who closed on highly leveraged deals at the top of the real estate market are having a tough time refinancing or selling now that debt payments have come due. At the same time, more and more tenants are either scaling back or vacating space altogether, property values are on the decline in many markets and refinancing remains a challenge now that spreads for bonds backed by commercial real estate are wider than ever. Manus Clancy, managing director of a New York-based firm that tracks commercial property markets, blames "pro-forma" underwriting practices for many of the current problems, adding, "Instead of lending on leases in place, people would lend on future rollover and future repositioning, and that has led to execution risks." Real Capital Analytics reports that sales volume in commercial real estate is down more than 70 percent from last year, as a growing number of properties changing hands are either distressed or in default.