Commercial Real Estate Woes Far From Over, Survey Shows

A financing drought and declining property fundamentals are pushing up both "maturity" and "performance" defaults on commercial mortgages, threatening to undermine the economy's longer term ability to create jobs and grow, according to The Real Estate Roundtable's latest quarterly survey of senior commercial real estate executives.

Of the 120 top executives participating in the Q3 "Sentiment Survey," 93 percent said asset values are lower than they were a year ago, while 82 percent expect values to remain roughly the same or to erode even further in the next 12 months.

Debt markets remain highly dysfunctional.  Seventy-one percent of respondents said credit availability is worse today than a year ago, while 41 percent characterized it as "much worse." A majority of respondents (62 percent) expect credit conditions to be at least "somewhat better" by this time next year.

The new overall sentiment index reading of 49 remains significantly below the ideal of 100 — a reflection of the extreme weakness in current market conditions. The Current Conditions index now stands at 36 and the Future Conditions index at 62.

The overall index is measured on a scale of 1 to 100 and is based on an average of the "Current Conditions" and "Future Conditions" indices.  To attain an overall index of 100, all survey respondents would have to answer that conditions are "much better" today compared to one year ago, and will also be "much better" 12 months from now.

The Roundtable cautioned that the slight increase in the indices should not be taken as a sign of "improvement" in commercial real estate markets, but rather that the sense of a free fall in the markets had subsided.  As one survey respondent said, "I felt until recently like we were running in quicksand, but we're not doing that anymore."

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