Tampa Commercial Real Estate | Florida Commercial Property

….Well, I did say “it isn’t so” and still do say that the predictions of impending crash of the commercial real estate market are greatly exaggerated.  I was recently quoted by James Thorner, of the St Petersburg Times about my feelings on the market.  I believe I was the only Tampa commercial real estate broker or professional in the article that felt the gloom and doom is over done.  Is there stress in the market?  You bet there is.  Vacancy rates are at their highest in years.  Values have fallen in the area on average between 30-40%.  The loans on all of these deals that were made at the peak of the market will have to be renewed in the next 3 years.  Under normal times, these loans would be challenging if not impossible to renew.  BUT….these are not normal times.

The banking system has been rocked from the collapse of the residential and derivatives markets.  The sytem has been leaking water like an old wooden skiff.  The regulators and elected officials have decided that it would not be a good idea to kick the teetering financial system over the cliff.  As was mentioned in previous posts in this blog, the IRS and FDIC have provided new guidance in regards to easing renewals of loans that are performing, but failing to meeting current underwriting standards (called performing/non-performing assets).

I don’t think these measures can be taken lightly.  The government has the ability to stamp out a commercial real estate fire or at least keep the burn a controlled one.  Certainly, the bankers I have spoken to have felt some of the pressure taken off, particularly from the FDIC guidance (although, you can trust me that they are not sleeping soundly these days, regardless).  And, I don’t believe these will be the last actions government bodies will take to make sure the “problem can” will be kicked down the road.  The general call to action is “A rolling loan gathers no loss” and this will be the recipe du jour for some time to come.  Are we facing tough times?  Yes, the commercial market will be a tough slog over the next few years?  But, what about Armageddon?  Nope.  I don’t see it happening, not this time anyway.

For those interested, here is Mr. Thorner’s article from the Sunday paper:

Commercial Real Estate Crash Coming, Many Say

By James Thorner, Times Staff Writer

In Print: Sunday, November 8, 2009

We all know why home foreclosures are bad. Nose-diving home values and neighborhood blight are just two of the ugly offshoots of mortgage defaults.

But should we care if the neighborhood shopping center, office park or condo project go bust?

We should. A lot.

Experts fear that a commercial real estate meltdown, following hard upon the housing collapse, could prolong economic turmoil in a Tampa Bay region (…..for the complete article)

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This is significant news out of Washington, but not unexpected, at least by this blogger. I have long maintained that the regulators, Congress and other government bodies will do what is necessary to mitigate a commercial real estate collapse. Information of upside-down loan values and the huge number of performing/non-performing loans* is well known to the industry and regulators. The banks are in no condition right now to take massive hits to their balance sheets so close on the heels of the credit freeze and residential meltdown that we just experienced.

In their guidance, the FDIC is opening the door for banks to rework, negotiate through and prudently modify loans that are essentially deemed salvageable, even if they are considered high risk, according to current underwriting standards.

Separately, it should be noted that the IRS also recently provided guidance regarding CMBS loans to allow for an improved tax environment for lenders  renewing ballooning notes  that have excessive loan to value ratios.

For more information, here is the press release from the FDIC and an article from the Miami Herald.

*Performing/non-performing loans are those loans that do not meet current credit underwriting standards, but the borrowers continue to pay scheduled payments. This is a term that we will hear a lot in coming months. As bleak a picture has been painted about the CRE market, most of the issues with commercial real estate debt revolve around performing/non-performing loans.

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One thing I have learned in over 20 years of banking and investing experience, when the consensus thinks a business cycle will happen in predictable scripted fashion, rarely does the event follow the script.  Monday morning quarterbacks and talking heads will pop up  after the fact and declare the actual result was the only logical occurance.  The majority of us were just dummies.

Well, here we are again.  The world is predicting doom and gloom for the commercial real estate sector.  Vacancies are accelerating.  Defaults have come seemingly unhitched and are running away from us.  Values have plunged.  Certainly, from most observers’ perspective, it is logical that when the 5 year balloons of the most egregiously inverted properties come up for renewal, starting in 2010 and running through 2012, the commercial market will experience a cataclysmic meltdown, sending the economy in to a rebound recession and knocking banks out across the country.    There is no doubt, that logically, this scenario is a possibility.  What this scenario does not account for, however, is the fact that markets are amazingly efficient and capitalism can sometimes really work, particularly when there is time to plan.

For more than a year, billions of dollars have been raised in funds anticipating the supposedly inevitable cornucopia of once in a lifetime deals that will fall in to investors’ laps.  To date, many of these funds have been more fizzle than sizzle.  Lets face it.  Right now, from a deal standpoint, 2009 is not turning out to be RTC 2.0.  We still may see the days of RTC circa 1991 played out with properties being purchased at 30 cents on the dollar, but something tells me that all the money that has been building in funds and on the sideline may not allow history to repeat itself.    It will be interesting to see how this all unfolds.  With history as my guide, though, I just can’t help but feel the reality will not play out the way most predict.

Here is an interesting article about the numbers of loans outstanding and funds on the sideline.

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