What is the congenitally optimistic real estate professional to do when confronted with a Moody’s report entitled thusly: “For CMBS, Recovery Appears Through a Glass, Darkly – and Slowly.”
Apparently, so downcast was Moody’s senior VP Daniel Rubock that he had to resort to poetic language – and, later on, a LeBron James metaphor! – to articulate his predictions. And his conclusion? A rebound in commercial real estate “will not be any time soon.”
“Our reckoning of the best case of when a CRE recovery will emerge (what goes down eventually does come up) is late 2010 or early 2011, though this depends on the macroeconomic arc of recovery,” he wrote.
In a worst-case scenario, recovery will begin in 2012. In the best-case scenario, recovery would begin late 2010 or early 2011 . Though Mr. Rubock warns that even when said recovery “begins,” it may well be an unpleasant beginning, one fraught with “anemic growth” or “volatile acceleration/deceleration.”
“This much is certain: because commercial real estate has not changed its stripes, it will continue to be an economic performance dawdler, typically lagging macro trends by between four and six quarters.”
And the drubbing goes on, believe it or not:
“[Commercial real estate] will stagnate because of increasing unemployment rates, increasing vacancy rates, and increasing capitalization rates. This will lead to decreasing property values and, accordingly, more formidable refinancing challenges, decreasing cash flow and thus increasing term loan defaults, and continued liquidity ordeals for both capital markets and portfolio lenders. REITS, which many times act as a herald for CRE financing, have recently been able to raise surprising amounts of capital and some debt. How long before other (more leveraged) areas of CRE finance follow is an open question.”
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