• Lisa Simpson
• Sep 23,2009
• In: Real Estate

Clouds Hang Over Commercial Real Estate Market

This year dark clouds are hanging over the commercial real estate of the market Sales have fallen by 90% since the peak days of 2007. Few investors with pockets stuffed with cash see this as an opportunity for investing. During the boom times the market was dominated by inflated appraisals and a heavy dependency on loans. Buildings were almost instantly resold. But today the buyers are picking the properties with great care and paying ridiculously low prices in cash. Their plans are to hold on to the units and wait for the clouds to clear.

It is not easy to find high quality units. There are still many owners who are reluctant to sell and are waiting for the tide to turn. In this climate even a comparatively ordinary building will be in demand. In June 2009 a fully rented 182,000 sq ft four storey office building in the suburbs sold for $62 million. Only a couple of years ago this building fetched $68.8 million.

The building was bought by G. Joseph Cosenza of Inlan Real Esate Acquisitions of Oak Brook in Illinois. The firm is the biggest purchases of commercial properties in the country according to the findings of Real Capital Analytics. This purchase is one among the many Consenza has bought across USA since the start of 2009. In 2008 he spent $3 billion. This year he has made purchases worth $1 billion.

Consenza is swimming against the flow of the tide and he is happy with his role. Consenza commented, “We’re not looking for trophies; we’re buying solid income-producing real estate that is not in default.”

Some experts are saying that Cosenza and other daring investors like him will gain handsomely from these steps they are taking right now. David Funk of Cornell University Program in Real Estate said, “For the opportunity fund with the resources, it’s time to make a killing. In 10 years, people will look back at 2009 as the year fortunes were made.”

But other pundits are wary. Raymon Torto of CB Richards Ellis Group said, “There’s always a risk being first on the frontier. The market has a significant way to fall.” Many agree with this view because prices are further falling. Owners in need of funds to improve the units or to refinance are up against a tight credit squeeze and cannot get the required loans. This is leading to banks taking back properties and selling them dirt cheap causing further fall in prices.

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