Source: Richmond Times Dispatch
Exerpts from the above referenced article:
“….But commercial real estate can’t seem to shake its perception as “the next shoe to drop.”
If value write-downs by the country’s two largest pension funds are any indication, the other shoe has already dropped.
California Public Employees’ Retirement System (CalPERS) wrote its real estate holdings down by 35.8 percent as of March 31. The California State Teachers’ Retirement System (CalSTRS) wrote down its holdings by 43 percent for the fiscal year that ended June 30.
The combination of huge real estate value decreases with the surge in the stock market leaves both pension funds under-allocated for real estate.
Translation: Even though CalPERS and CalSTRS just absorbed enormous losses in real estate, they now need to focus on making new real estate acquisitions at a time when many buyers are on the sidelines.”
“…This trend should actually help increase the volume of real estate transactions at a time when investment sales are absolutely anemic.”
“….One industry insider coined the phrase, “a rolling loan gathers no loss,” which aptly describes current banking protocol where it makes more sense to extend loans rather than push borrowers into default at maturity.”
Commentary: We have heard overwhelmingly from the press that commercial real estate is doomed. I found the above referenced article contrarian to current popular opinion. Not mentioned in this article, is the billions of dollars that are stacking up on the sidelines from vulture funds planning on buying prized assets at pennies on the dollar, which could potential prevent the bottom dropping out of the market, as many predict will happen. Commercial real estate investment may still end up becoming a financial apocalypse, but there will be forces acting in the opposite direction of the predicted collapse. One thing that I have learned over my career in financial services and real estate is that when the majority predicts a certain outcome to a situation, rarely does the prediction actually play out as planned.
