Silver Linings for Commercial Real Estate

While commercial real estate like other asset classes has been suffering in this recession, there are silver linings, according to Jay Brinkman, Mortgage Bankers Association chief economist, and Jamie Woodwell, vice president of commercial real estate research, speaking during the second opening session of the MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo yesterday. For one thing, the absolute levels of loans are well below what they were in the late ‘80s and early ‘90s, Woodwell noted. What makes things more difficult this time is the higher levels of complexity brought on by the greater splitting up of risk this time. In addition, a lot of the pain has already been felt, Woodwell noted. Among other parameters. CMBS deals have already been repriced and in fact are probably way overpriced. Another plus for commercial real estate, he noted, is that “there’s a ‘there’ there.” The fact that there is a discernible asset that can be valued and that has measurable cash flow makes commercial real estate more likely to attract investors sooner than less palpable assets. And finally, Brinkman predicted, Treasury spreads are not likely to widen further this year, as they have already widened artificially and compression in credit spreads is likely to offset the Treasury rate. “Over time we will see the normal patterns re-emerge, but probably not this year,” he said.