MIT recently released their 4th quarter Transaction Based Index findings. In this report, MIT included a useful timeline which tracks NCREIF Property Index (NPI) trends beginning in Q1 1984 to Q4 2009, while denoting critical market events.
This graphic was most interesting to us as it helped put the current crisis into perspective. In nominal terms, this bubble appears to be exponentially larger than any other in the last 25 years.
Commercial real estate veterans reference the 1986 tax reforms, the Savings and Loan Crisis and the days of the Resolution Trust Corporation (RTC) when asked when the last commercial real estate crisis occurred. Most (if not all) agree that the current crisis is certainly worse than the RTC days.
But going back to MIT’s July 2009 commentary, we were able to find a chart which adjusts for inflation.
While the upswing and downturn of this real estate bubble was certainly more pronounced, in real terms (once the effects of inflation are accounted for), commercial real estate price levels are still above the lows seen in the early 90s.
The big question remains, “How long will the crisis drag on?” Without some level of purging, this recovery period could continue to drag on for some time to come. Consider the charts to the right.
You’ve probably seen a CMBS loan maturity chart in the last 12 months. With nearly $40 billion in CMBS maturities in 2010, and new securitization activity basically nonexistent, many of these 
mortgages are receiving 12 month extensions, so long as the cash flow covers the debt service. This means these maturities are simply being stacked on top of the next year’s maturities.
Conditions become even more stark when one considers maturing commercial property loans held by life companies, banks and thrifts. Considering these debt maturities in addition to CMBS maturities, there is about $250 billion in maturing debt in 2010 and nearly $300 billion in 2011.
Extend and pretend is not the answer; simply delaying refinancing demands will only exacerbate the problem over the next 5 years. Interest rates are low now for a reason: to ease the downward pressures of a weak economy.
Once inflation ticks up, interest rates are sure to follow. When they do, achieving an acceptable debt coverage ratio will be more difficult for many commercial property owners when they look to refinance.
A CRE Boom & Bust Timeline by MIT
MIT recently released their 4th quarter Transaction Based Index findings. In this report, MIT included a useful timeline which tracks NCREIF Property Index (NPI) trends beginning in Q1 1984 to Q4 2009, while denoting critical market events.
This graphic was most interesting to us as it helped put the current crisis into perspective. In nominal terms, this bubble appears to be exponentially larger than any other in the last 25 years.
Commercial real estate veterans reference the 1986 tax reforms, the Savings and Loan Crisis and the days of the Resolution Trust Corporation (RTC) when asked when the last commercial real estate crisis occurred. Most (if not all) agree that the current crisis is certainly worse than the RTC days.
But going back to MIT’s July 2009 commentary, we were able to find a chart which adjusts for inflation.
While the upswing and downturn of this real estate bubble was certainly more pronounced, in real terms (once the effects of inflation are accounted for), commercial real estate price levels are still above the lows seen in the early 90s.
The big question remains, “How long will the crisis drag on?” Without some level of purging, this recovery period could continue to drag on for some time to come. Consider the charts to the right.
You’ve probably seen a CMBS loan maturity chart in the last 12 months. With nearly $40 billion in CMBS maturities in 2010, and new securitization activity basically nonexistent, many of these
mortgages are receiving 12 month extensions, so long as the cash flow covers the debt service. This means these maturities are simply being stacked on top of the next year’s maturities.
Conditions become even more stark when one considers maturing commercial property loans held by life companies, banks and thrifts. Considering these debt maturities in addition to CMBS maturities, there is about $250 billion in maturing debt in 2010 and nearly $300 billion in 2011.
Extend and pretend is not the answer; simply delaying refinancing demands will only exacerbate the problem over the next 5 years. Interest rates are low now for a reason: to ease the downward pressures of a weak economy.
Once inflation ticks up, interest rates are sure to follow. When they do, achieving an acceptable debt coverage ratio will be more difficult for many commercial property owners when they look to refinance.