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And here is more of what you don't want to hear. The frenzy of residential foreclosures is spreading to the commercial real estate market. Owners of commercial real estate, shopping centers, and office buildings, face many of the same problems as homeowners. Property values are down and tight credit market makes refinancing difficult or even impossible. Add rising vacancy rates and it points to a commercial real estate crisis. From Miami, NPR's Greg Allen report.
GREG ALLEN: Strolling around downtown Miami, it certainly doesn't look like commercial real estate is in trouble. There are currently three big office buildings under construction, including this one, a 47-story tower called Met 2.
In two years, when the entire Met complex is completed, it will also include condos, a hotel, and a 120,000-square-foot retail center, what Tim Weller of the MDM Development Group calls a shopping and entertainment destination.
Mr. TIM WELER (Vice President, MDM Development): The combination of creating some open plazas, nice outdoor seating, very pedestrian-friendly part of our project right in the core of downtown - it has an atrium, it's like four-stories high, it's all open, a lot of glass. So it's very visible and so we think it will be a real draw here.
ALLEN: This is the Miami where, in the past two years, more than 25,000 new condominium units have come on the market. Gleaming new condo towers have reshaped the city's skyline, but sales have been slow and foreclosures are common.
With the glut in the condo market, some developers converted their projects to office towers. Next year, when Met 2 is completed, nearly two million square feet of new office space will be coming on the market.
Mr. JONATHAN KINGSLEY (Managing Director, Grubb & Ellis Company): That is way more square footage than can ever be absorbed at one time, even in a good economy in good times.
ALLEN: Jonathan Kingsley is with Grubb & Ellis, a commercial real estate company. The development of new office buildings downtown comes as firms in Miami and around the country are making cutbacks and closing offices.
In this economic environment, anchor tenants for new buildings are hard to come by. MDM suffered a blow recently when Whole Foods Market announced it was pulling out of the Met project. Kingsley says the declining demand and the oversupply of office space suggest this will be a tough year for commercial real estate.
Mr. KINGSLEY: We project that in the next three to four quarters, we could see vacancies go from what's now, you know, eight to 10 percent threshold, to 14 to 16 percent.
ALLEN: The vacancy rates are expected to be even higher in cities like Atlanta, Phoenix, and Las Vegas. But in every crisis, there is also opportunity.
Mr. MICHAEL FAY (President, Colliers Abood Wood-Fay): This is really our world.
ALLEN: Michael Fay recently set up a new distressed property services group at Colliers Abood Wood-Fay, a real estate company in Miami. Fay got started in the business back in the '80s, helping the Resolution Trust Company and other government agencies liquidate property during the S&L crisis.
He sees many of the same opportunities emerging in this downturn. With declining property values, plus rising vacancy rates - Fay says commercial landlords are facing tough decisions.
Mr. FAY: Now that the music has stopped, there are a lot of people, banks, investors, lenders, that are caught with this way overvalued property that has got highly leveraged land, and it's gone into foreclosure, and now they're trying to sell it. And it's going for literally 40 cents, 50 cents, 30 cents on the dollar in some areas.
ALLEN: As bad as all that is, it's not the biggest problem facing commercial real estate. What many commercial landlords are worried about is the same thing that's bedeviling homeowners, businessmen, and the economy at large. That is the lack of available credit. ..TEXT: Banks and other institutions that back commercial real estate are calling on Congress to use some of the federal TARP money to help restart an important part of the system - commercial mortgage-backed securities. These are close relatives of the mortgage-backed securities that are blamed, in part, for the housing meltdown.
Christopher Hoeffel of the Commercial Mortgage Securities Association says the commercial securities are more highly regulated than their residential counterparts, and they're vital to the industry, accounting for more than half of all financing before the downturn. Hoeffel says something needs to be done because many commercial property owners will soon be in dire need of refinancing.
Mr. CHRISTOPHER HOEFFEL (President, Commercial Mortgage Securities): Well, the biggest concern is balloon maturities, i.e., the loans are coming due, and there's no lending to take out the loans and replace them with new loans.
ALLEN: An industry group, the Real Estate Roundtable, estimates that $400 billion in commercial mortgages will come due within the next several months. Unless there is government action to revitalize the commercial mortgage market, the group warns of severe consequences for investors, workers, local governments, and the economy as a whole. Greg Allen, NPR News, Miami.
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