WSJ Changes Its Tune

The Wall Street Journal had reported of late of the problems facing commercial real estate looking largely at the CMBX index, which has signaled huge defaults coming. Goldman Sachs also put a report out predicting just under $200 billion in defaults. Yesterday, though, the paper reversed course a bit, reporting that the downturn won't be as bad for commercial real estate.

One thing interesting about the article is that the WSJ used Reis Inc.'s data, which shows that retail development in the recent cycle did not reach the same peaks it did in the 1980s. That contradicts the line the WSJ put out in this story, when it quoted data from Property Portfolio Research, which does say that retail development in the most recent cycle did hit a new peak. So which of these views is correct?

On the bright side, however, the commercial-property downturn isn't expected to be nearly as steep as the current slump in the housing market, where recent data showed foreclosures rising to the highest level on record in the fourth quarter of 2007.

Losses by commercial-building owners, lenders and investors are likely to be tempered by the lack of overbuilding in recent years and the ability of most office buildings and other commercial ventures to keep current on their mortgages.

That's partly because commercial properties typically produce income. While millions of American homes are under water because their value has fallen below the amount owed on them, most commercial buildings are generating enough cash to pay off their loans.

"Fundamentally the markets are in pretty good shape," says James Duca, managing director of Moody's Investors Service.

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