Why The Commercial Real Estate Crash Never Came?

Less than four years ago, lawmakers and executives warned that the market for hotels, malls, apartments, and office buildings would be the next to collapse, after countless homeowners lost their homes to foreclosures. While prices across commercial real estate declined almost 40%, it never quite crashed like the housing market. Yes there were foreclosures and defaults, but not to the scale of housing.

There are a few reasons why the crash never came, which also help explain how commercial real estate has recovered much faster than the market for homes. Unlike residential, the commercial market didn’t bubble up nearly as much as housing; it was not nearly as overbuilt, either.

While there were defaults, the commercial market didn’t see nearly as many foreclosures as the housing market. Joblessness and plummeting home prices led many to miss mortgage payments, which led to the wave of defaults. Commercial properties saw similar price declines, but unlike residential properties, owners enjoyed continuous flow of income by way of rents from tenants. This gave owners struggling with the credit crunch considerable relief.

“There were defaults in the commercial space, but it didn’t hit the heights seen in the single-family market,” says Susan Wachter, real estate and finance professor at the University of Pennsylvania’s Wharton School of Business. Rather than a wave of defaults, the real estate crash triggered a wave of workouts whereby banks renegotiated the terms of loans, sold to new owners or took the properties over. Private equity firms also swooped in and bought up distressed properties.

Hotels, in particular, have recovered in big ways as stocks soar and the economy improves.

Let me know how we can help you get the most from your commercial property!

Make it a great day!

Jeff

Leave a Reply

Your email address will not be published. Required fields are marked *