Commercial real estate will not cause another recession, expert says
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More bad news is on the way for commercial real estate, but it won’t be bad enough to bring down the economy, a leading property analyst said today.
Bob Bach, the chief economist at brokerage Grubb & Ellis, refuted an assertion made often last year by other analysts that pending commercial-property bankruptcies could throttle recovery and push the country back into recession.
‘Many have called commercial real estate ‘the next shoe to drop,’ but that’s really an exaggeration,” Bach said. “It implies that commercial real estate could wreak damage on the financial system equivalent to the subprime residential mortgage losses, which is highly unlikely because the value of outstanding commercial mortgages is a fraction of the value of outstanding residential mortgages.’
Nevertheless, Bach said, losses will mount over the next several years for commercial-property owners and their lenders.
‘If banks aren’t lending because they’re coping with losses in their real estate portfolios,’ Bach said, ‘this could impede the economic recovery.”
He predicted commercial real estate’s decline in value will slow this year and begin to turn around in early 2011.
-- Roger Vincent
