Commercial Real Estate Not Getting Healthier

There have been recent articles and reports that indicate the office sector is still suffering from high vacancy rates and it is not getting better. Consumer confidence plummeted in June. Investment sales have not really picked up despite some reports this sector is improving. Only the core asset properties which are 95%-100% leased by high credit companies that have long lease terms remaining. Cap Rates are are going up not down for all but the Core assets described above.  Unemployment remains high and by all indicators will remain so for the foreseeable future. Credit is still tight not just for commercial real estate investment sales which should not be the only barometer in which credit availability should be measured. Small businesses the life blood of the American economy is being squeezed.

Adding to the above, FASB is going to change the way Companies account for their leases. They will no longer be able to keep them off their balance sheets. They will have to log those leases as liabilities for the entire aggregate lease value. This means Companies will look to take shorter term leases which will not help commercial real estate lenders or better said landlords and developers since their financing is directly tied to those leases and lenders much prefer long term leases to go along with their long term mortgages. As we have witnessed 5 year mortgages come due in a hurry and must be re-financed just as what is happening presently.

I am posting links to those articles on the Small Biz Village facebook page if you care¬† to read them. This is why I continue to write you have to read between the lines and realize most of what is being so called “reported” by industry groups such as commercial brokers or industry organizations is a lot of hype.