Virtually everyone in commercial real estate these days will say things are better than they have been in some time. Nothing compares well with CRE activity in the good old days of 2007, but "off the bottom" is not a bad place to be when the industry's prospects over the next few years "could threaten America's already-weakened financial system," according to a recently released government report. The 183-page report was completed by the Congressional Oversight Panel, whose task was to assess CRE loan loss risk to the country's financial stability. Other observations in the report include that $1.4 trillion of loans come due between now and 2014, and 50 percent are underwater; and that there are nearly 3,000 banks with problematic exposure to commercial property. The panel's bleak assessment of the industry is probably close to accurate if all banks with more than 30 percent of their assets tied up in CRE loans closed shop tomorrow and liquidated. However, the reality is much different. So, what's making commercial real estate people more optimistic? Special servicers are so overwhelmed with problem loans it's forcing them to take action and dispose of what they can. The market has been waiting for this and views it as vital to commercial real estate's recovery. Another disturbing problem for many institutions was lack of clarity and direction from the government. While this problem still haunts many lenders, those that have good controls in place and are not overexposed to real estate are back in the game. The FDIC has not provided explicit direction on new lending activity, but its lack of ability to shut down banks with problematic loan exposure allows relatively healthy banks to move forward and go about their business. The other positive factor is a pickup in transaction activity, particularly in larger cities. The latest data from New York-based research firm Real Capital Analytics indicate that December 2009 transaction volume for commercial real estate deals larger than $5 million was up 75 percent from the same period a year earlier. Activity is a telling sign that we are moving away from the bottom.
Story via 2012 Real Capital Analytics Inc