Commercial R.E. Liquidity Shock Threatens 'Mammoth Proportions'

Senior real estate executives believe the economic downturn has “paralyzed” the commercial real estate market, according to a survey by the Real Estate Roundtable for the 4th quarter 2008.   Not surprisingly, 84% of respondents said credit availability is much worse than it was a year ago.

"Real estate is now experiencing a seismic liquidity shock. Even though loan delinquencies in the sector are very low, the ongoing lack of credit and drop in asset values has paralyzed the market," Roundtable CEO Jeffrey D. DeBoer said in a press release. "It is now clear that unless bold policy actions are taken to specifically assist commercial real estate markets, this problem will intensify to mammoth proportions."

An open letter to President-Elect Obama from the Roundtable contains five urgent recommendations.  One is to create a new credit facility for commercial real estate debt, perhaps comparable to a GSE—“or modeled along the lines of the covered bond structure that is now used in Europe.”

There is no further reference to covered bonds in the Roundtable’s letter, but it’s interesting to see the topic raised in the context of commercial (rather than residential) real estate.

Read a Roundtable press release on the survey and the open letter: Real Estate CEOs Foresee Dark Clouds on Economic Horizon