As the U.S. economy continues to emerge from the recent economic downturn, commercial real estate (CRE) lenders, debtors, and investors are scrutinizing a number of factors that could influence their decisions in 2011, Among these are:
- Changing fundamentals for lending institutions, such as the impact of continued low interest rates, more rigorous underwriting standards and loan terms, substantial loan maturities, and other economic factors
- The amount of distressed debt remaining to be worked through, particularly in lower-quality assets
- The potential impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) on real estate
- Ongoing questions with respect to the strength of property fundamentals, potential for overheating in the transaction markets, and sufficiency of liquidity to support ongoing restructurings and refinancings
Absent a strong boost from the economy, the performance of commercial real estate fundamentals has remained weak. While trends vary among property types, some key industry metrics indicate that sharp declines experienced during the height of the downturn have stabilized.
Until the U.S. economy regains its footing — and until employment picks up for good — the market for CRE properties will likely offer mixed prospects for lenders, debtors, and investors. And while the amount of distressed debt remains a concern, the combination of “extend and pretend” and availability of fresh capital has helped to temper the situation somewhat.
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