Commercial Real Estate Careens Toward Disaster
Anyone doubting that the commercial real estate industry is careening toward disaster may want to peek at the latest CMBS delinquency figures. They are soaring! Up to $32.55 billion in September from $5.39 billion a year ago. That’s a five-fold increase in just 12 months and more than 14 times higher than in March 2007. Translation: Banks aren’t the only ones undergoing a liquidity crisis. The fact is many commercial real estate owners and developers don’t have sufficient cash flow to service their debt.
That’s just an inkling of the real disaster confronting owners and developers in the next few years. Coming is a powerful one-two punch that may knock out thousands of real estate owners and developers across the country. Property values are plunging and are already down a whopping 40% since 2007. Worse yet, banks lack the liquidity to refinance even half of the $1.2 trillion in commercial real estate debt due to mature by 2013. That means thousands of owners may be unable to refinance their properties. Many distressed owners will have few choices other than to sell their property, if they can find a buyer, or declare bankruptcy.
As a result, Remington has been working closely with brokers and owners developing and alternative option. We call it the Distressed Owner Recapitalization (DOR) program. It’s new and focused solely on helping distressed owners recapitalize troubled properties that banks can’t or won’t refinance. Key to the DOR program is the Remington global network of active public and private sources of fresh, new capital available for investment in troubled properties.
Not to be overlooked by owners or brokers is the fact that recapitalization of distressed properties can be a market opportunity for all concerned. While there is a loss of equity in the transaction, recapitalization offers the distressed owner something that selling the property or declaring bankruptcy cannot. It allows the owner an opportunity to stay in the game and to participate when market values turn around.
Tags: access to commercial capital, andy bogdanoff, commecial real estate, commercial real estate disaster, Distressed Owner Recapitalization, remington financial group