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Distress: The Waiting Game

SUMMIT, NJ-Most commercial real estate lenders have yet to admit and realize their losses and proffer assets to the huge pools of opportunistic buyers waiting on the sidelines.

By Alyson Grala | Updated on September 01, 2009

SUMMIT, NJ-For the third month in a row, acquisitions of office properties increased in July, albeit modestly. However activity remains muted and sales of distressed properties, expected to be the catalyst to re-energize investment, have yet to materialize in earnest. There is no shortage of distress–$17.4 billion of office properties are known to be in trouble, according to Real Capital Analytics’ August 2009 Month in Review report, but lenders are in little rush to foreclose.

Many pundits and the administration in Washington have declared we have hit bottom and better days are ahead for real estate. But residential indicators are generating mixed signals. Existing home sales velocity has risen and the Case Shiller Index released in August points to prices having risen 1.4% nationwide in June. “Foreclosures continue to rise as residential mortgage delinquencies mount,” says Mark Scott, senior vice president and managing director of NorthMarq Capital in Parsippany. “Until a clear bottom has been put in the residential market and consumer confidence continues to rise–the Consumer Confidence Index did in fact rise in August–positive signs on the commercial real estate market remain remote.”

Most commercial real estate lenders have yet to admit and realize their losses on commercial real estate and proffer assets to the huge pools of opportunistic buyers waiting on the sidelines. “Buyers are seeking high returns for taking on risk in today’s commercial real estate market as fundamentals remain questionable,” Scott says. And lenders, at risk of adversely impacting their capital base now, are extending and amending loans rather than admitting their losses by foreclosing and selling assets in today’s difficult environment.

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