U.S. CRE Defies Doomsday Predictions

February 22, 2011

Office building and retail property values are rising, defying predictions of a collapse that would drag the U.S. economy back into recession. Last February, the Troubled Asset Relief Program (TARP) Congressional Oversight Panel said that a deteriorating commercial real estate market had the potential to wreck the U.S. economy. The panel's report noted that almost half of the $1.4 trillion in commercial property loans set to be paid off by 2014 were under water.

Office building and retail property values are rising, defying predictions of a collapse that would drag the U.S. economy back into recession. Last February, the Troubled Asset Relief Program (TARP) Congressional Oversight Panel said that a deteriorating commercial real estate market had the potential to wreck the U.S. economy. The panel's report noted that almost half of the $1.4 trillion in commercial property loans set to be paid off by 2014 were under water.

Despite that forecast, prices of commercial properties sold by institutional investors surged 19 percent in 2010, the second-biggest gain on record, according to the MIT Center for Real Estate's index. Industry experts credit near record-low interest rates with luring buyers with the prospect of cheaper financing and higher returns.

Investments in office properties, the largest part of the market, more than doubled last year to $41.6 billion, showed a Real Capital Analytics Inc. report. Investors who are convinced that the worst is over have pushed prices on commercial mortgage-backed bonds to the highest level in two years.

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