Commercial Real Estate panel discussion at UT Gov’s Econ Summit. Commerce’s John Taylor Q&A on CRE market, lending, and rates.
Along with Linda Wardell, City Creek Retail Center, Bruce Bingham, Hamilton Partners, and Scott Wilmarth, CB Richard Ellis, John Taylor, Director of Corporate Services for Commerce recently participated in a commercial real estate panel discussion at the Utah Governor’s Economic Summit.
Q&A with John Taylor:
How are we doing locally, are we out of the woods yet?
- There is positive job growth and a rebound in retail sales which is the best indicator that the worst has passed. Industrial jobs are returning, the primary lead indicator that allow us to grow. Instate business leaders’ interest is much better
than surrounding states.
Many CMBS loans come due in the next few years. What is the impact on commercial real estate?
- There is $2.5 trillion in debt from all sources on commercial real estate that needs to be refinanced in the next few years. There will not be a huge wave that will hit as expected. Many lenders have been working with borrowers, termed as “extend and prepare,” to help lessen the impact of those loans coming due. These policies have helped lenders shore up balance sheets and have forestalled a wave of distressed assets hitting the market in Utah, to date. Our problems are not so bad compared to surrounding states.
Tell us a little bit about our CAP rates.
- Port cities and gateway cities are seeing strong increases in value for trophy properties, which REITs view as an opportunity. Values are not back to where they were three/four years ago. Utah is a microcosm to most markets and we have had very few sizeable investment transactions, since 2008. Buyer interest is there but very few properties available.
Where do we stand with bank owned properties?
- Utah is a secondary market and does not have a lot of distressed real estate. Banks have been creative and moved debt around.
Are you seeing financial institutions loosening lending standards? What projects are lenders interested in lending to?
- Lenders have money and want to lend right now. However, they are picky and are not lessening their standards. There is almost $80 billion in CMBS debt projected to be available in 2011, which is a threefold increase over 2009 and twofold over 2010. But when compared to the 2005 to 2008 period $80 billion is anemic. New CMBS issuers will be targeted to only the best of the best projects. B and C properties will continue to have challenges getting new loans.
What happened to the term “waiting for the other shoe to drop” with commercial real estate?
- Banks are doing what they can to not be a part of this. They are selling notes, so that someone else holds the debt. Some have stabilized due to banks working with borrowers. A lot of debt needs to be refinanced. This is a good time to be in Utah. It’s still an issue, but it is not going to drag the market into a tailspin.