Federal help wanted for commercial property - East Valley Tribune: Business

Federal help wanted for commercial property

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Posted: Tuesday, May 5, 2009 6:00 pm | Updated: 3:04 am, Sat Oct 8, 2011.

Commercial real estate brokers, developers and others believe the commercial real estate downturn is severe enough to warrant federal assistance.

The Obama administration and Congress are taking one disaster at a time, and they're still focused on the residential crisis, said Anthony Sanders, professor of finance and real estate at the W.P. Carey School of Business at Arizona State University.

"There's not a lot of political popularity to bailing out commercial mortgages and commercial properties, but the fact of the matter is they are going to be suffering problems, too," he said. "And since pension funds and insurance companies hold a lot of this debt, they're going to have to do something."

The Federal Reserve last week announced that the Term Asset-Backed Securities Loan Facility (TALF) - aimed at stimulating consumer lending - will be expanded in June to include commercial real estate mortgages. The move is aimed at helping to prevent defaults on economically viable commercial properties, increasing the capacity of current holders of maturing mortgages to make additional loans and facilitating the sale of distressed properties.

As for any proposals to further assist commercial real estate, a spokeswoman for U.S. Sen. John McCain, R-Ariz., said none are pending in the U.S. Senate.

"Sen. McCain will continue to monitor the situation, as it affects the Arizona market," said Brooke Buchanan.

Several industry groups have been in Washington, D.C., pitching the case to do more to help the commercial mortgage market, Sanders said.

"A lot of these loans just would not qualify for financing going forward because they're missing some tenants now in the recession," he said. "So the argument is that either encourage banks or other financial institutions to sort of slacken their underwriting standards until we get back on our feet with these loans ... or what you're going to have is the money goes away and your loans go away, and then suddenly these investors don't have sufficient capital to keep these shopping centers, and voila, we have a disaster on our hands."

Vacancy rates across the Valley continued climbing during the first quarter in office (22.8 percent), retail (9.7 percent) and industrial (14.5 percent) space, according to commercial real estate brokerage CB Richard Ellis.

Craig Henig, the brokerage's senior managing director in Phoenix, said the "shoe hasn't dropped yet" in commercial real estate. He is hopeful the Federal Reserve's decision to expand TALF will help.

"Once the mechanism is in place, lenders will hopefully begin to lend on commercial real estate assets," he said. "Additionally, lenders will be more flexible by extending terms and offer other modifications to existing borrowers."

In the meantime, existing borrowers are struggling as vacancies continue to rise, Henig said.

"If they don't get the loan relief, they're not going to be able to cover their debt service, they're not getting the rents, they're not making any money and they're not going to have enough money left ... to operate the building," he said.

There's mounting evidence that the commercial real estate market needs help as more properties head into foreclosure, said Jim Crews, director of investment sales at Cushman & Wakefield, a global real estate brokerage.

"You're already seeing it on the land side and you're starting to see it on the multifamily side," he said. "Retail could be the worst, and there's going to be an issue with office buildings."

Credit markets currently are "frozen everywhere" and it's having a major impact on commercial real estate, said David Larcher, executive vice president of Vestar, which owns about 14 million square feet of retail space across the Valley.

The lack of available credit continues to push down commercial real estate values and creates a barrier for tenants who want to expand, he said.

"I think you'll see a continued deterioration in commercial real estate values until there is stabilization in those markets," he said.

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