Stimulus Programs, Financial Market Intervention to Benefit CRE–But Not Right Away

The government’s pumping up of the economy via various programs created by the nearly $800 billion economic stimulus package and interceding in the financial market will indirectly incite the revival of the commercial real estate market, according to a new report by Marcus & Millichap Real Estate Investment Services. But the major impact is unlikely to be felt this year. The present state of the commercial real estate market leaves a great deal of room for improvement. Marcus & Millichap notes in its report that sales volume, restricted by the gap between buyers’ and sellers’ pricing, has barely made a blip on the radar within the last six months. While the pricing disparity showed some signs of improvement in the first quarter of 2009 due to declining property fundamentals and the ongoing general inaccessibility of debt capital, there remains the issue of the impending maturity of commercial mortgages with which the industry must contend. Approximately $218 billion of commercial mortgages will come due this year, followed by $270 million between 2010 and 2011, so while commercial delinquency rates were relatively low as the economy headed downward, the lag effect will soon come into play. The CMBS delinquency rate increased in the first quarter and is on track to increase even further to the 4 percent to 5 percent range by the close of 2009. Banks could see the delinquency figure climb to $53 billion, as indicated by recent stress tests. However, the aforementioned stress tests have also revealed that, with the new federal programs coming into play, capital should become more easily accessible, thereby eventually spurring an uptick in commercial real estate conditions, particularly since the majority of property sectors avoided overbuilding as the downturn approached. Yet, visible change in the commercial real estate market, will trail economic recovery by about six to nine months. Improvement is on the way, but the impact of the federal stimulus package and financial market intervention won’t be felt at its strongest until after the year has come to a close. As Marcus & Millichap notes in its report, one can look to the apartment and industrial sectors, which are most sensitive to job creation and increased consumption, to show the first signs of recovery.