Defaults on commercial property could rise to 3-4% of all outstanding loans in the US next year, according to the Urban Land Institute.
The Emerging trends in real estate 2009 report, compiled by PricewaterhouseCoopers and ULI, says that it expects commercial foreclosures in the US to increase next year as lenders “bite the bullet” on workouts and special servicers become more active.
The report, for which 440 property experts were interviewed, predicts that more investment banks will fold over the next two years, with a growing number of hedge funds also joining the casualty list.
“Continuing shockwaves emanating from the commercial market correction will erode market confidence further and discourage investing until players can be relatively certain the bloodletting is over,” it says.
ULI adds that, although substantial vulture capital has been raised to buy distressed properties, which may cushion against severe value declines, real estate businesses will continue to “starve” until debt funding resumes.
None of its interviewees expects any surviving financial institutions to increase lending, even with “gargantuan” government bailouts.
ULI reckons that the industry will hit rock bottom next year and will flounder well into 2010, when – barring any unexpected economic jolts – it will slowly start to recover.
