Default Rates Rise As Available Financing Deteriorates

The deterioration of available financing is continuing to wreck havoc on the investment sales market in the fourth quarter of 2008, reports New York-based research firm Reis. Sales volumes fell by double digits compared with the fourth quarter of 2007 in office, retail, industrial, and commercial sectors, all while cap rates continued to rise.

This deterioration spells bad news for commercial property owners because it will limit their ability to sell assets to avoid defaults on near-term notes.

The research firm estimates there are more than $270 billion in commercial real estate loans coming due in 2009, but securing refinancing remains difficult. In the first quarter of 2009, close to 80% of senior loan officers surveyed by the Federal Reserve reported tightening standards for commercial mortgages.

Normally, asset sales can serve as an alternate route for owners unable to refinance. But with the investment sales market at a standstill, projections of the commercial real estate default rate will rise to 4.2% in 2009 and could hit 4.8% by 2012.

So far, the office sector seems to have suffered the most, with a huge drop in the number of sales transactions in the fourth quarter, and a decline in dollar transactions, when will it ever hit bottom?

Despite the economic difficulties our world currently faces, improving the economy should focus its energy on small businesses. At the Brentwood Business Center our tenants objectives are at the forefront of everything we do, resulting in a rewarding long term relationship. We understand that our tenant's real estate needs are ongoing and evolving especially in todays real estate market.