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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Rough year seen for commercial real estate

Vacancies, stagnant rent predicted for industry

Associated Press

NEW YORK – The balance of power between landlords and tenants will shift dramatically in 2009.

For landlords, this promises to be a year of intense competition, more bankrupt tenants, and tightfisted lenders. For renters, it looks like a time of abundant choices and tiny – if any – price increases.

From apartments to shopping malls, office towers to dockyard industrial space, the commercial real estate market will be marked by rising vacancy rates and weak to no rent growth. And the chokehold on credit could push many property owners that need to refinance into foreclosure.

Nearly 40 percent of real estate investors need to refinance part of their portfolios this year, according to more than 1,100 investors surveyed in October by Marcus & Millichap Real Estate Investment Services and National Real Estate Investor magazine.

“It’s hard to be an optimist right now,” said Dan Fasulo, managing director of research firm Real Capital Analytics. “We’re at the point where there’s another potential systemic failure that the industry is trying to avoid.”

Real Capital identified more than 1,000 large commercial properties nationwide, representing $25.7 billion, that are already bank-owned or the landlord is in default. But there are another 3,700 properties, worth $80.9 billion, that could potentially fall into trouble this year, the firm estimates.

Last month, a commercial real estate trade group appealed to the Bush administration for a slice of the $700 billion bailout of the financial services industry. The Treasury Department has yet to make a decision whether to include commercial property loans.

If the government doesn’t come to the rescue, industry experts expect lenders to step up in aiding troubled property owners by offering maturity extensions or other workouts.

“Lenders don’t want to run malls,” said Victor Calanoog, research director at Reis Inc.