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Commercial real estate prices raise concern about bubble

On Behalf of | Feb 9, 2017 | Commercial Real Estate |

California commercial property investors and developers have reasons to be cautious after the chair of the Federal Reserve described commercial real estate prices as high in a speech at Stanford University. Federal Reserve officials included San Francisco on the list of overheated markets.

At this point, officials plan to supervise the possible market bubble through financial means other than an interest rate hike. During the financial crisis of 2007 to 2009, prices for apartment, retail, office and industrial properties dropped 40 percent. A strong recovery ensued, however, and commercial real estate prices have regained losses and risen 23 percent beyond the peak before the recession according to price indices from Moody’s/RCA.

Delinquency rates on commercial mortgages currently hint at the potential for trouble in 2017. Among those mortgages placed into bond products, a forecast from Fitch Ratings expects the delinquency rate to rise between 2.4 to 5.75 percent. Maturing loans could be straining the budgets of property owners more than in previous years.

The financial difficulties of a commercial property owner might represent an opportunity for an investor. A person interested in purchasing a distressed commercial property might wish to work with an attorney while vetting the deal. An attorney could examine the issues surrounding a seller’s bankruptcy or foreclosure and explain how those obligations might influence the sale. Other issues such as zoning and taxes could be evaluated by an attorney so that the buyer could consider the possibility of redeveloping a site for another use. An attorney could aid in negotiations to determine the final price and other terms of the purchase agreement.