Commercial Real Estate Foreclosures

New York, Las Vegas, then Los Angeles… No these are not the cities that will be the first to escape the recession, unfortunately it is the three cities that have been hit (and will continue to be hit) the hardest in commercial real estate foreclosures.

According to a New York-based Real capital Analytics, the troubled commercial real estate loans in Las Vegas have grown from $4.7 billion in early 2008 to $7.85 billion today. This accounts for 25% of the market. Steve Green

Steve Green of the Las Vegas Sun reports that there is already a 17% vacancy rate in office space. That’s nearly Five years worth of inventory that will need to be absorbed.

The problem that the commercial real estate market is seeing, especially in these three large markets, is that developers and other borrowers run into trouble because of the economy and are having difficulty refinancing their debt; while lenders increasingly are having to make concessions so they don’t have to foreclose on the properties.

As the commercial real estate properties are foreclosed on, buyers are able to purchase these properties at a discount and in turn can (and must) lease out the buildings at a much discounted rate. Consequently it drops lease rates and begins another round of foreclosures because these landlords can’t service the debt at a reduced rate.

Although the St. George Utah commercial real estate market has not been able to continue the same growth pace as the prior two years, we have not yet found ourselves in the predicament that some of these larger cities are facing. It will take time to absorb the vacancies that we currently have, but nowhere near the five years that Las Vegas can expect.

This entry was posted on Wednesday, April 22nd, 2009 at 8:29 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.