CRE Distress Is on Everyone's Minds (Thursday's News & Notes)

As the economy begins to recover from the housing crisis that led us into the worst recession in 80 years, many in the real estate and financial sectors are beginning to turn a worried eye toward commercial real estate. There has been a debate carried on in the media of late about whether or not the damage from distressed commercial real estate loans will come to rival the mess created by the sub-prime mortgages.

The consensus so far? The damage to the banks is likely to be extensive and will take a while to work through, but might not lead to a second act to the Great Recession. Below, Marcus & Millichap CEO Harvey Green offers his take on the subject, while the Hard Hat Chat blog gives owners some hands-on advice on how to deal with distressed assets.

  • First, the bad news. The Business Insider reports that Moody's Delinquency Tracker (DQT) posted the largest increase in its history this September. The tracker went up 41 basis points, to 3.64 percent.
  • Data like this is worrying the Federal Reserve. Minutes from the Fed's recent Open Market Committee meeting show the Committee's members feel that commercial real estate has not hit bottom yet, according to The Wall Street Journal. This puts banks at risk of further losses. Another Wall Street Journal story reports that the Federal Deposit Insurance Corp. would like to push banks to rework the terms of troubled commercial loans.
  • Marcus & Millichap's president and CEO Harvey Green, however, has a more optimistic take on the matter.
  • But just in case, Hard Hat Chat offers commercial real estate owners advice on how to minimize losses from distressed assets. The advice focuses on development projects.
  • For some in the industry, however, the rising levels of default spell opportunity. Real Property Alpha discusses the growing supply of distressed debt in terms of its value to the vulture funds currently circling the market.
  • One investor that definitely plans to pick up some attractive portfolios during this cycle is Starwood Capital Group CEO Barry Sternlicht.
  • In other news, private equity is beginning to strike again. Our sister publication Supermarket News reports that Berkshire Partners has just purchased a stake in Grocery Outlet, a discount chain based in Western U.S.
  • And the CoStar Group has published a story claiming drug stores have led the retail industry in store openings this year.
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