While declining values, debt maturity and tight credit access, and stalled construction may continue to plague commercial real estate in the U.S. for the remainder of 2010, economic indicators point towards the potential for economic recovery this year, according to Deloitte's Perspectives on Real Estate: Uncovering Opportunity in a Distressed Market.
The firm expects some real estate asset classes to bottom out and then start to recover this year. Rent levels will begin to rise with job growth and increases in consumer spending and gross domestic product, although Deloitte cautions that this will likely be a slow rise.
Hospitality – which many believe has already bottomed out – and multifamily residential may be the first to rebound because of the short-term nature of their leases, with longer-term leased assets such as retail, office and industrial recovering more slowly
With an uptick in value drivers for commercial real estate potentially lagging the general economic recovery by three to six months, owners and mortgage holders will likely continue to struggle with debt maturity this year and beyond, with an expected increase in foreclosures and deeds in lieu.
‘The Fed's Beige Book released this month indicates a nascent economic expansion, with commercial real estate lagging the overall economy as it has historically done," says Bob O'Brien, Deloitte's vice chairman. "With the market poised for change, savvy investors with access to capital may find the time to act is drawing near.’
Opportunistic investors, many of which raised significant capital for this purpose, are using foreclosed properties and distressed debt as a strategic opportunity to make opportunistic acquisitions and expand their real estate portfolios, Deloitte says. Key targets approached to capitalize on these investment opportunities are banks, mezzanine debt holders, CMBS special servicers and the Federal Deposit Insurance Corp.