Ariel Fisher, a co-member of the Corporate Real Estate Group on Linkedin asked the question:
"How close is the real estate industry to hitting "bottom?" And what do you think is the number one sign that we've reached that point and are on our way to a real recovery?
A Colleague of mine recently wrote a blog post on the state of the real
estate industry. He believes that the "bottom" is in sight and that we
are on our way to a real recovery.
He cites private REITs recently going public and Tishman Speyer handing
Stuyvesant Town back to the lender in lieu of bankruptcy, with several
creditor/buyers trying to snap it up at a bargain price, as just two
examples that the "bottom" is near.
(Click:
http://blog.buildingengines.com/?p=423
to read the full article, including other examples of an impending "bottom.")
Once we see employment rates increasing, he argued, we will know real
estate recovery is on the way. What do you believe is the number on
sign to look for that things are on the up-and-up?"
I answered as follows:
Commercial real estate still has a way to go before it bottoms out
and I think that we are only still in the early stages of the problem.
Probably about 1 1/2 to 2 more years before it bottoms out. The fact
that there is still money out there to spend on real estate only means
that there are potential bottom dweller buyers, including REITS looking
to snatch up the deals, which I believe there will be plenty of. This
is what the REITS did in the mid to late 90's.
The more interesting questions is how will the continuing fall of
commercial real estate effect the economy? In answer to that question,
I answer, "some," but not as much as the collapse of the residential
market. I see the economy more likely to continue to effect commercial
real estate then the other way around. As long as unemployment
continues to remain high and less money is available from a large pool
of consumers there will continue to be commercial real estate failures
and bank or lender failures and maybe some REIT failures.
To make my answer even more verbose, with the current backlash over
government spending, the federal deficit and the effectiveness over
prior and existing bailout plans, I have serious doubts that the
government is about to bail out commercial real estate investors,
anytime soon. The most likely scenario that I see is that commercial
property owners will continue to fail, causing banks to continue to
fail, which the FDIC will have other banks take over who will pick over
the good assets of the failed bank and leave the rest to the FDIC, who
will then sell the bad assets at a highly discounted rate. When that
process begins to slow down is when you will see signs of the real
estate industry hitting bottom.
For other interesting discussions and information on commercial real estate, visit the Corporate Real Estate Group of LInkedin, which can be found at http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=13118264&gid=35901&trk=EML_anet_qa_ttle-d7hOon0JumNFomgJt7dBpSBA
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