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Experts: Expect Normalcy To Return

NEWPORT BEACH, CA-Fundamentals for commercial property types are mostly positive, though further subprime spillover is a possibility.

By Daniel D. Williams | Updated on October 31, 2007

NEWPORT BEACH, CA-”The housing market is in turmoil, but the fundamentals for commercial real estate product types are very strong,” said Harvey Green, president and CEO for Marcus & Millichap. Speaking at the firm’s annual 2008 Real Estate Investor Symposium at The Fairmont Newport Beach, Green added “we’re in a more normal market now. It’s a market with opportunities, but one that requires us to look more closely at the fundamentals.

Hessam Nadji, managing director of research services for the firm, said the current market was created in a 2004-06 environment where “if you could fog a mirror, you could get a loan.” During that period, more than $2 trillion was taken out of homes and used to snap up big-ticket items such as plasma TVs and automobiles. Today, the home-as-ATM is out of cash, Nadji said.

With a housing inventory of at least 10.5 months, the problems will persist well into 2008. Commercial real estate will avoid much of the problems, but is not immune to subprime spillover. According to a Moody’s study, the real problem could come from psychological risk associated with subprime loans, where $1.3 trillion of outstanding mortgage debt is considered to be at risk. Moody’s predicts that one-third will default. That figure, if it hits, tallies $100 billion in actual losses. While that number seems staggering, Nadji said it only accounts for some 1% of the total US mortgage market.

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