The housing and mortgage market have been going through some difficult times in recent months. However, unlike the residential real estate cousin, the commercial real estate market has been doing well.
The construction spending on shopping centers, office buildings, and other nonresidential projects rose by 15.2 percent in August, led by strong growth in retail and office segments. Commercial retail sales jumped to $401 billion from $359 billion last year.
Unlike, residential real estate, where home loan mortgages, such as interest only mortgages, adjustable rate mortgages, and subprime mortgages have been a cause of concern, along with foreclosures; the commercial mortgage and real estate market has been growing.
The current home loan market has not had any residual effects on the commercial market. According to many experts, the commercial market has been able to sustain itself and grow because the buyers and sellers are more sophisticated and have more financial wherewithal to ride out any turmoil.
Just like the housing market, the commercial arena is a great place to look for opportunities for investment; although bargains are more readily available in the home buying market. The commercial mortgage and real estate market is a different animal than the residential construction business.
In the commercial arena, banks have a direct relationship with commercial real estate developers and other business leaders, not banks and homeowners as in the housing market. This by in itself creates more stability in the commercial market as commercial mortgage lenders are familiar with the real estate business history of the borrower, thus providing less risk to the banker.
But this doesn't mean that the market would be unaffected if economic progress didn't accelerate. If there is a correction in the economy, commercial real estate market may become vulnerable to the credit-risk contagion. This may lead some sellers asking for more money upfront if other mortgage-backed assets are financing the purchase.
In New York, Washington, San Francisco, and some other areas of the country, institutional and foreign investments have remained stable. The core fundamentals of the commercial market remain muscular with increasing occupancy and rent levels projected to grow, particularly in metropolitan areas.
At present there is no oversupply of commercial properties, a good sign for maintaining real estate price levels. In order to keep the prices adequate and occupancy high, it is better to have an undersupply, not an oversupply.
Herein, Host Hotels & Resorts Inc., the country's biggest lodging real estate investment trust, announced this month its third-quarter results which beat Wall Street analyst estimates due to superior occupancy and lodging rates. Also, the $22 billion acquisition of Archstone-Smith Trust, an apartment building operator by commercial real estate company, Tishman Speyer earlier this month gave another boost in the arm to the marketplace.
This shows there is still much confidence in the continued growth of the commercial mortgage and real estate market. Certainly, there is plenty of capital available from investors.
