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Saturday, December 15, 2007

CRE Outlook Dims

by Calculated Risk on 12/15/2007 04:56:00 PM

From the Chicago Tribune: Commercial sales outlook turns darker

... since the summer, sales in the commercial real estate market have slowed radically as financial institutions and debt markets reel from the fallout of years of ill-advised financing.

... as the economy slows, real estate fundamentals such as rents and vacancies seem destined to weaken, and some wonder if the frenzied commercial property deals of the recent past were wise.

Lenders competing for ever-larger shares of commercial property loans offered low- or no-interest financing for 90 percent or more of the asset value to buyers who might have rushed through their due diligence and bid up prices extravagantly, said Arthur Oduma, a senior analyst for Morningstar Inc.

"Lenders were almost reckless," he said.

Mark "Sam" Davis, senior managing director of real estate for Allstate Insurance, a commercial property lender and a unit of Northbrook-based Allstate Corp., agrees.

"In hindsight, some of these deals don't look so good and are unlikely to perform as the economy weakens," Davis said.
The Chicago office market could be further weakened because 6 million square feet of new office space is in development, with 3.6 million square feet of that scheduled for completion in 2009.
"With so much space rolling over, and tenants having more options, that makes investors back away," said Oduma.
"Reckless" lenders, slowing demand and more supply coming; those are key CRE fundamentals.