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Bank lending to commercial real estate has followed an interesting trajectory in recent years. After increasing steadily, the outstanding value of loans leveled off and began to decline in September 2008 when the bankruptcy of Lehman Brothers paralyzed credit markets. Then in the last week of September, loan volume spiked as panicked borrowers sought to tap their existing lines of credit to secure working capital. Since that time, loan values have leveled off and begun to decline; the number of loans maturing and not being renewed is greater than new loans being issued, which are few. With bank credit shrinking and the CMBS market still largely frozen, commercial real estate values have fallen by nearly 40 percent.
Source: Federal Reserve, Grubb & Ellis

Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning. His commentary on the real estate markets is provided here on a weekly basis.

Two Steps Forward, One Step Back

October 2, 2009

 The economic news has been mixed recently. In the marquee data release of the week, the Bureau of Labor Statistics reported this morning that employers shed 263,000 net payroll jobs in September while the unemployment rate increased one-tenth of a percent to 9.8 percent, its highest level since June 1983. Job losses of any magnitude are not good news, but there are some mitigating factors:

• Monthly data fluctuate and are subject to revisions. On a quarterly basis, the trend continues to be in the direction of reduced losses: -691,000 in the first quarter of 2009 versus -428,000 in the second quarter and -256,000 in the third quarter.
• The health care sector, a subset of education and health services, remains a bright spot, adding 19,200 jobs. Since 1990, the sector has suffered a net job loss in only one month (July 2003).
• As of mid-morning, stock and oil prices are down while bonds are rallying. A sluggish labor market recovery, though painful for Main Street, helps keep the pressure off of interest rates, oil prices and inflation.

Robert Bach

SVP, Chief Economist

Grubb & Ellis