A Commercial Drecession (Recession plus a little Depression)

OK, from the Fed’s Beige book:   “demand for space remained weak.”  “fragile” or “softening” real estate market conditions remain in many regions, including Richmond, Va., Minneapolis, St. Louis and Kansas City.  The light?  It’s a long tunnel  By mid-2010, Jones Lang LaSalle  predicts investor interest in U.S. markets will slowly begin to return. But transaction activity likely won’t reach the dizzying levels of the 2005-07 market “for a generation or longer,”  The past: an era in which cheap and easy credit and overzealous speculation led to the latest and worst commercial real estate price bubble.  The future:  A gradual return to liquidity. We have a year or so, and a generation to go before the is another feeding frenzy like the past 5 years with ridiculour cap rates.  Want a life company loan?  Use a 15% vacancy, cap the NOI at 90 or 10, and take 60 to 65 percent of that.  You may be close.  Then take the NOI divided by the loan amount.  The result is what we used to call the escape cap rate.  It needs to be a 13 or higher.

About Timothy E Thomas

Senior business development officer, CENNTENNIAL LENDING, metro Denver. Responsible for SBA 504 production and conventional small balance commercial lending. Centennial is a credit union service organization owned by 13 credit unions in Colorado and Wyoming. Former SBA-USDA desk manager and Registered Representative for Isaak Bond Investments, Inc., a municipal broker dealer and market maker in SBA and USDA guaranteed loans and pools; taxable and tax exempt municipal bonds and agency securities serving institutional investors for over 33 years, member SIPC, FINRA.
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