There is an interesting article in Fortune Magazine explaining why the commercial market didn't totally melt down to the extent the residential market did. To quickly summarize:
1. While Commercial real estate was overbuilt it was not to the point the housing market was. In fact until 2005 residential developments used areas that customarily would have been used for commercial development
2. Many owners of commercial properties still had income in the form of rent payments from tenants unlike home owners who lost their income when they lost their jobs. This allowed many to at least limp along and hold out until better times arrived.
3. Banks renegotiated loans and rolled balloon payments further down the road to allow the market to recover. Of course there were foreclosures, but there were also third party sources with money to spend, and were able to scoop up income producing properties at bargain prices.
This is not to say that the commercial real estate market did not have its problems, values dropped on average of 40% and are still recovering. There were foreclosures and a lot financial pain, but a complete meltdown as predicted NOPE.
Here is a link to the article:
http://finance.fortune.cnn.com/2013/09/23/commercial-real-estate-hilton/
Thursday, September 26, 2013
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