Panel of experts: Problems 'looming' for commercial real estate business

The effects of the recession are passing for some industries, but not for the commercial real estate business, a panel of experts said Tuesday.

Beach Co. President John Darby called the problems for the industry "looming" as millions of commercial loans nationwide become due for property owners who owe more than what their buildings or land are worth.

He cited a Deutsche Bank report from April that predicted two-thirds of the commercial real estate loans expected to mature before 2018 won't qualify for refinancing without a major infusion of cash.

The Charleston market, without towering skyscrapers or a glut of vacant commercial space, may avoid some of the upcoming wave of loan defaults. But local developers said they'll still pay the price, as gun-shy lenders have become increasingly risk averse.

"We've all got to work with the banking institutions to figure out how to get to the other side," said Chris Fraser, president of Grubb Ellis|WRS, a local commercial real estate firm.

Fraser and Darby were part of a panel that discussed the widening gulf between financiers and property owners Tuesday at a forum organized by the Charleston Metro Chamber of Commerce's Developers Council. Two bankers also were on the panel, but they couldn't offer much assurance.

"We're under scrutiny, which makes it touch to help people," said Brian Kornahrens of Carolina First's commercial lending division.

Christopher Abbott of Bank of America said some situations will force lenders to turn to "solutions that aren't 100 percent positive for everyone" involved.

"In some cases where all sides are sort of stuck ... perhaps foreclosure is the way we go," he said.

Nationally, economists have pointed to a recent uptick in consumer confidence and other improved economic indicators, but Tuesday's panelists worried that the recovery could still stumble.

Interest rates are expected to climb as the federal government stops buying mortgage-backed securities this spring, they agreed. And the $8,000 first-time homebuyer tax credit, which has stirred up interest on the residential side of the industry, is set to expire April 30.

Meanwhile, commercial investors will continue to take a hit on income from their properties.

Fraser, whose Mount Pleasant-based firm manages more than 3 million square feet of commercial space in the region, said it's a buyer's market, as business closings and other recession-driven cutbacks push vacancies higher. He noted that at least one tenant in every building in his company's portfolio is getting a break on rent or other concessions.

"If I kick them out, who am I going to replace them with?" Fraser said.

By Katy Stech

The Post and Courier

Wednesday, January 20, 2010

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