RCA Says Equity in Trillions in CRE Property at Risk

Owner equity in $1.3 trillion in commercial property is "at great risk if not already wiped out," according to a report from research firm Real Capital Analytics (RCA).
In an analysis of trends in commercial real estate capitalization, RCA President Robert White noted that properties acquired or refinanced between 2006 and 2008 have seen their prices decline approximately 25 percent on average. White based the conclusion on data from the Moody's/REAL Commercial Property Price Index for May 2009.
"Many of these properties, typically leveraged 70 percent to 80 percent, would face significant refinancing hurdles, even if prices held firm. Few lenders now are willing to advance more than 50 percent to 60 percent of value," White said.
White also pointed out that $2.2 trillion of properties purchased or refinanced since 2004 have lost value.
White said the total value of distressed commercial real estate assets has more than doubled this year, with $39 billion in office, industrial, retail and apartment properties falling into foreclosure, default or bankruptcy. At least another $31 billion in hotels and other commercial property types have reached the distressed level as well in 2009, according to White. Meanwhile, only 10 percent of the distressed situations have reached a resolution, White said.