Letter from the CEO
4/19/2010
With the second quarter of 2010 well underway, the commercial real estate market is not yet ready to recover despite signs the recession has ended. As the residential real estate crisis shaped the 2009 credit market, we may very well see commercial real estate defaults make an impact in 2010 and years to come. Time will tell what action, if any, congress will take to deal with yet another crisis.
The sheer scope of the commercial real estate properties affected is significant. Between 2010 and 2014 nearly $1.4 trillion in commercial debt will need to be refinanced. Of this figure, nearly half of the buildings are under water as commercial real estate values have fallen close to 40 percent. The ability to refinance will be difficult. Tight credit markets, increased vacancy, and declining property values will force many large commercial properties into default and others will change hands. This could have a ripple effect on banks and tighten up the already challenged commercial real estate credit market.
Though this is happening across the nation, areas that are struggling with unemployment and declining populations—including Michigan—are more at risk. However, Michigan’s challenges are opportunities to many. The state features available talent and an engineering and technical work force that is among the most advanced in the world. Coupled with affordable real estate, these and many other factors have attracted companies to locate or expand their operations here, quietly diversifying our economy. Additionally the automotive industry underwent a painful restructuring and is poised for a recovery. Despite the doom and gloom, Michigan’s long-term future has many bright spots.
Organizations must continue to be aware of the strategies that will allow them to take advantage of today’s opportunities while preparing for those ahead. The latest edition of Plante Moran CRESA’s Commercial Real Estate Advisor E-Newsletter will keep you up to date on trends and events affecting users of space.
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