Thursday, July 23, 2009

Commercial real estate following path of residential real estate - off cliff

Today's Oregonian featured a story about another local developer who is facing foreclosures and behind on back taxes:

John Beardsley, known for renovating historic downtown buildings, is Portland's first major commercial developer to see his properties move toward foreclosure amid growing problems nationwide in commercial real estate.

Since May 1, lenders have filed default notices -- the first step in a foreclosure -- on 10 properties owned by Beardsley's companies. The defaults cover loans and sales contracts originally signed for $58 million and taken out during the real estate bubble between 2003 and 2007, according to Multnomah County property and court records

Beardsley also owes the county $354,000 in back taxes, according to county records.

As opposed to the denials about the state of the residential market, John seems to be very honest about how bad it is, and how bad it's going to get:

"The bottom fell out of the market," Beardsley said. "I'm a reality of it. Tom Moyer's a reality of it. It's a very sobering time. ... This is significantly worse than the 1980s."

That reality, Beardsley said, reflects the economy: Struggling employers have laid off workers, reduced their office space, asked for cheaper rent or closed altogether. The result: Beardsley's average rents have dropped and office vacancies have jumped to 25 percent, more than double the normal rate.

"It's a very difficult market in commercial real estate," said Al Kennedy, Beardsley's lawyer and one of the city's go-to attorneys for financially troubled companies. "It's just beginning to surface."

The Portland Business Journal also recently reported on the state of the commercial market nationally:

Commercial real estate values around the country have dropped 35 percent from their peak in October 2007, according to Moody’s REAL Commercial Property Price Indices.

The decline appears to be accelerating as the index dropped more than 15 percent during April and May. Transactional volume also fell along with value, which is showing signs of effects from distressed sales.

“May marked a new low for both counts,” the report said.

Along the lines of kicking a sector when it’s down, a rise in interest rates caused several deals to unravel, hitting apartment sales the hardest.

To calculate the index, Moody’s used 52 repeat sales, which had a dollar value of $400 million in April 2002.

It sounds like the commercial troubles are only going to get worse, while the residential market problems are starting to slow down nationally.

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1 comment:

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