A host of commentators have anticipated an impending collapse in commercial real estate that will rival or surpass the horrors that have already afflicted residential properties. A new article in the San Francisco Chronicle opines, however, that the loan defaults yet to come in commercial real estate will not be enough to stop a recovery in the market at large. Commercial lending does not suffer from the proliferation of nontraditional mortgages, and has a much lower proportion of “underwater” landlords.
first tuesday take: It is always an oversimplification and a mistake to conflate two different types of property. People who expect commercial real estate to suffer from the same problems as residential property, or to follow a similar timeframe, will be surprised by the differences between the two. Nonetheless, the root causes of the current residential real estate crisis and commercial crisis have one thing in common: jobs. So long as California’s employment remains depressed, and thus the buying power of Californians remains low, real estate of all types will continue to suffer. For more on the current state of employment in California, see first tuesday’s market chart/article “Jobs Move Real Estate”.
In spite of their differences, however, do not expect income property to fare any better than residential property in this recession. The loans on income property have an equally toxic defect – due dates – which will produce the same deliterious result as is already occurring in homes due to massively increased monthly payments on adjustable rate mortgages (ARMs).
Re: “Commercial Real Estate on Shaky Foundation”, from the San Francisco Chronicle