While those in the commercial real estate market are hardly in a festive mood, reports that the sector is likely to collapse and trigger a second recession are exaggerated, three billionaire investors told CNBC Tuesday.
“I just don’t believe that’s the case,” Sam Zell, chairman of Equity Group Investment, said about speculation that CRE represents a threat to the system or the next leg down of the financial crisis. “We haven’t had a new real estate asset of any significance committed since July 2007,” Zell said, adding that it may take another 24-36 months before a major project is committed.
“I think it’s going to be a long, hard struggle even without new construction,” Wilbur Ross, chairman and CEO of WL Ross & Co., said. “I think it is going to be tragic for the equity owners and for some of the lenders.”
Ross said he sees regional banks as being the biggest victims in the CRE crisis, since 80% of all the maturities coming due in the next two years are held mostly by them.
Building values have declined by as much as 35-40+% around the country, and even more in areas where prices soared the highest. According to Zell, ” the most severe slowdown has been in office real estate”. “I’d suspect that probably that would be the first to recover,” Zell said.
Richard LeFrak, president of the LeFrak Organization, said that considering the sector’s price deterioration “this is a generational opportunity for people to buy real estate if they have cash available”. LeFrak also said that malls are likely to suffer, as “the new norm is that nobody goes shopping, everybody is saving,” adding that mall vacancy rates run at about 11-12%.
