Wednesday, July 22, 2009

Bernanke: CRE May Pose Risk

by Bill McBride on 7/22/2009 01:17:00 PM

From Bloomberg: Bernanke Says Commercial Property May Pose Risk for Economy

Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.
...
It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today ...

“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”
A few key CRE stories this month:

From Dow Jones: Moody's: Commercial Real-Estate Prices Fall 7.6% In May
Commercial real-estate prices fell 7.6% in May ... The indexes are down 29% from a year ago and 35% from their October 2007 peak.
From Reuters: U.S. architecture billings index down in June - AIA
"It appears as though we may have not yet reached the bottom of this construction downturn," AIA Chief Economist Kermit Baker said. "Architecture firms are struggling and concerned that construction market conditions will not even improve ... next year."
From Bloomberg: U.S. Commercial Construction to Drop 16% This Year, Report Says
Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said.
...
Hotel construction is likely to decline 26 percent this year and 17 percent in 2010, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent in 2010, according to the report.
Strip Mall Vacancy Rate Hits 10%, Highest Since 1992
"[W]e do not foresee a recovery in the retail sector until late 2012 at the earliest."
Victor Calanog, director of research for Reis on Retail CRE
Apartment Vacancy Rate at 22 Year High

Hotel Recession Reaches 20 Months

U.S. Office Vacancy Rate Hits 15.9% in Q2
"It's bad. It's decaying and getting worse. Given the depth and magnitude of the recession, you can argue that we are facing a storm of epic proportions and we're only at the beginning."
Victor Calanog, Reis director of research on the Office Market.
And a comment from the USG (building materials supplier) conference call this morning:
"Nonresidential construction does appear to be headed further south, perhaps significantly so."
No kidding.