Impact of Commercial Real Estate Defaults on Overall Economy
Amongst the drumbeat of bad news and dire predictions, I enjoyed a recent article on Retail Traffic for its fresh perspective ("Commercial Real Estate Debt Won't Be the Next Shoe to Drop, Economists Say"). Many commentators have predicted that commercial real estate loan defaults will be the "next shoe to drop" on a economy struggling to find its footing in a fledgling recovery.
The Retail Traffic article cites economists who predict that the impact of CRE loan defaults will not be as widespread as the fallout from residential mortgages. Without a doubt, problems lie ahead in commercial real estate, principally from the lack of affordable debt financing at reasonable levels of leverage, but the fundamentals underlying CRE will ultimately be driven by the health of the economy. As unemployment slowly moderates and consumer spending falls into a more normal and sustainable pattern, commercial properties, including multi-family and retail, as well as office, will gradually find their footing.
This report at least hold out some hope that the CRE issues should not have the same degree of impact as the residential crisis.
