Interview with Solomon, Real Estate Developer, US
What are you seeing in the Commercial Real Estate market now?
Commercial Real Estate is undergoing deleveraging with the rest of the economy, debts are being reduced or going into default. Large numbers of projects are not cash flowing and will have to be liquidated, or ownership will have to be transferred. Concurrently, there’s an oversupply caused by the same ill advised financing that led to the overbuilding.
How far into the decline are the markets now?
So far about 25 per cent. A lot has been recognized. And it’s no longer a surprise. Some properties have already been foreclosed out. There are a lot of vacancies. I think a further substantial group of commercial properties will get foreclosed. I don’t see it leveling off for another few years because of the problems of contraction, debt, and oversupply. Oversupply in real estate doesn’t get worked off, the buildings have to be used. Less consumption and less business mean less demand. Creative financing, excessive easy money caused the oversupply, caused hyped up prices. Now there’s less demand, less employment, less consumption, and on top of that, the excess debt still has to be paid off – there’s more deleveraging coming. There are probably many years of value declines ahead.
Are there any areas where you would be building now?
Regions will do better in the lower tax states that are less unionized, with less government regulation, for example Texas.