Investor Wilbur Ross says we're on the brink of a huge commercial real estate crash.
"All of the components of real estate value are going in the wrong direction simultaneously," Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets, told Bloomberg.
Ross is head of his own investment firm, WL Ross & Co. in New York.
"Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up."
Ross advocates using “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
“I think it’s going to take quite a while to work itself out,” Ross says.
As of Oct. 15, Ross had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, using the funds to purchase residential mortgage-backed securities.
According to the Real Estate Roundtable’s latest quarterly survey of senior commercial real estate executives, commercial real estate markets remain extremely stressed with little prospect for significant near-term improvement.
"The problems now are more clearly defined and there's a grim sense of reality setting in, but that's a long way from saying markets are stabilizing or that conditions are on the mend," Roundtable President and CEO Jeffrey DeBoer told Reuters.
"With job losses mounting, consumer confidence in the doldrums, and a relapse of the recession still possible, additional policy action is needed to restore credit availability — the lubricant of the economy and job creation — and to address the equity shortage resulting from falling commercial property values.”
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