The Motor City In for More Pain

Vacancy rates have edged up and rents have retreated across commercial property sectors in Detroit, though the office and industrial markets have registered the most dramatic softening in recent years. In addition to another year of operational issues, Detroit commercial property owners will have to face the challenges associated with refinancing maturing debt, a difficult task even in markets poised for growth.

Roughly $1.5 billion of CMBS debt, or 17% of the total outstanding in the Detroit marketplace, is slated to mature during 2010 and 2011, nearly 16% of these loans already report debt service coverage ratios of less than 1.0. Since straight term extensions will do little to alleviate the underlying issues for these at-risk loans, and further hits to NOIs are anticipated in the near term, heightened foreclosure activity is likely to occur.