A few experts said it was going to happen, and all sorts of people preferred to just pretend it wouldn’t or couldn’t while commercial property owners desperately tried to modify, extend and amend their amassed debts with lower and lower property values to work with. However, that time has come: Commercial real estate owners are walking away.
The Wall Street Journal reported March 10, 2010, that the latest commercial property owner to take this plunge is Vornado Realty Trust (VNO), a 13 billion real estate investment trust. The group warned last week that it would “walk away” from 235 million dollars in loans.
The Journal predicts that the trend will escalate in the coming months as commercial mortgages undergo the same painful correction that the housing market has been going through. However, it may ultimately be even “easier” to step back when it comes to commercial loans, according to the expert from Dow Jones Newswires, because commercial loans are non-recourse in many cases and there is no direct obligation or claim on the owner’s assets.
Add to this the fact that there is a decreasing level of stigma attached to this kind of default. For a while, investors boycotted companies that took this route out, but at this point, that trend appears to be ineffective and fading. After all, when these loans mature and can no longer be kept afloat by Federal Reserve engineering, what else can they do? Refi’s don’t work anymore thanks to newer, lower valuations on properties, and companies are simply unable to make up the shortfalls thanks to higher delinquency rates and lower property values and rents.
As usual, this story has two sides. This “walking away” is not a good trend for our society to start accepting as “without stigma.” Every time it happens, it gets a little easier to do again in many cases, and that is not good. However, as is always the case when real estate starts heading for rock bottom, there are a lot of opportunities out there in commercial real estate right now – if you can grab it and hold on.
Apartment complexes – 20-30 units would seem to be the “prime” target for wise real investment. Assuming there is a reasonable “cash-flow” that is where I would put my available resources. Slightly raising the rent would immeasurably upgrade the net worth and hold that property for 5-10 years, receive the monthly income and then sell as it appreciates markedly after a period of time (5-10 years).
Thinking commercial property was going to appreciate is one of the big reasons this is happening in the first place, not a great strategy in the current climate of our country if you ask me. Also finding people to rent is not that easy in several parts of the country.
As for walking away, it is something people have done before and people will do again. Who really cares about stigma? The stigma of “proper conduct” was one of the things that lead to so many deaths on the Titanic, now there is a boat ride to stay away from!
Not one corporation has any hesitation about closing up shop or walking away from a bad deal if it wants to stay afloat. Holding onto a bad idea is what has doomed many a business over the years. Just does not make as big a splash when the corporation has enough money to swing into a different deal as it does when they do not have enough money and need to just run away.
Look at Saab, Saturn and Hummer, those are all going quietly into the night.
The entire economy is built on a house of cards with a jello foundation at this time. The record spending, really overspending by Obama and his crew, is going to collapse what is left of our economy if something is not done very soon. I am not being an alarmist, just someone looking at the numbers and contrasting them to the numbers of the past, here and around the world. Take a trip to Greece some time soon, oh wait a minute they closed all of the airports, maybe you cannot get there at this time.
If we do not stop all of the government overspending, over taxing and general stupidity soon, getting jobs, getting loans will become something the likes of which this country has not seen for decades, if ever. I do not see any signs that Obama and crew are getting any of the message and until I do I think walking away make very good sense and is really the only business strategy that makes sense at this time. One has to preserve capital at times like this, if one has enough capital to take the risk of throwing it away then maybe this is a good time, most businesses do not have that luxury at this time.
I have not seen the other shoe drop, not yet, and I do not think the strategies of the past are the best idea at this time.
QUESTION: ARE THEY WALKING AWAY FROM COMMERCIAL AS WELL AS RESIDENTIAL REAL ESTATE. ALSO DO YOU CONTACT THE BANKS/REO DEPARTMENT DIRECT TO FIND THESE PROPERTIES.???? PLEASE ADVISE. THANK YOU.
Is there a place were their are Commercial Real Estate that needs to be sold not just want to be sold is there a place on the internet or is there a physical place I can go and look them up.