Credit Crunch May Hinder CRE Markets
Although the commercial real estate sector is better equipped to handle the impact of an ongoing credit crunch than it has been in the past, returns are likely to be down in 2008, according to a report from Deloitte Consulting's real estate group.
"In prior boom cycles, commercial real estate has responded by overbuilding. The industry has clearly learned its lesson because this time commercial real estate is enduring a credit crunch, not a crisis - partially because it resisted this urge," notes Dennis Yeskey of Deloitte's real estate capital markets practice.
He added that the industry is in a strong position to endure a recession, in the event there is one, and commercial real estate remains a good option for investors seeking portfolio diversification.
He expects capital flow to resume in 2008, except for highly leveraged deals. Also, he sees new opportunities being looked for in distressed debt funds, niche opportunities and global markets.
Institutional investors continue to be interested in commercial real estate, according to Dorothy Alpert, national leader for Deloitte's real estate practice. And thanks to a weak U.S. dollar, foreign investors can find deals.
Commercial mortgage securitizations (in the form of CMBS and CDOs) have been impacted by the credit crunch.
Along with rating agency concerns, investor losses, and the U.S. economic slowdown, this has resulted in rising costs of debt capital and a repricing of commercial real estate debt. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/