Subprime Woes Not Yet Seen Hitting Industry

NEW YORK CITY-The problems in the subprime market that have plagued the residential sector have not yet hit commercial real estate, but speakers yesterday at the International Council of Shopping Center Capital Marketplace Conference were cautious when speaking on the subject. “This has been a wake-up call for us,” says James Lee, senior director of Fitch Ratings’ Derivative Fitch arm. “We want to make sure we’ve crossed our Ts and dotted our Is.”

The ratings agency is currently reviewing assets and in-house deals to make sure that cap rates and rental growth are inline with the market, he says. However, the commercial sector continues to show strength and defaults are at steady levels. “If we continue to find issues in the subprime space,” Lee warns, “That leads to a fundamental economic problem.”

Mitchell Hersh, president and chief executive officer of the industrial-owning Mack-Cali Realty Corp., says it is still too early to see how the situation will shake out. “It is the responsibility of us to protect this golden goose for the benefit of investors,” he says of the commercial sector, stressing that interest rates are still low.