Observations on the Market

The next big crisis in real estate will involve credit and valuations of commercial real estate properties. Many commercial properties have loans with 3 to 5 year "call provisions". With a call provision, the lender has to be paid in full although most of the time the lender will adjust the interest rate and "roll the loan over". The problem is that many commercial properties, especially retail properties, have lost value in the last year. That coupled with the fact that many commercial lenders are afraid to lend to anyone means that otherwise economically viable properties may face foreclosure when their loans come due.
Because, the market has come to a standstill, commercial appraisers are having difficulty finding recent comparable sales to use in their appraisals. This coupled, with stricter underwriting standards by lenders (if they are lending at all), will create a perfect storm for the commercial real estate industry. It will also, as always, create lots of opportunities for those who have a stockpile of cash.