Will the commercial real estate plummet further?

There is no doubt that the whole of the United States of America is witnessing a severe downturn in the nation’s housing market. Nevertheless, though the situation persists, it doesn’t amaze anymore. What is the condition of the commercial real estate market then? If we follow the pundits or the fiscal experts, this industry is tottering too. One of them is Edward Mermelstein, a real estate attorney and founder of Mermelstein & Associates in New York. On the word of Mermelstein, the commercial landscape isn’t faring much better and the recent Chapter 11 bankruptcy filing by General Growth Properties - which operates more than 200 regional shopping malls in 44 states - sends an ominous indication.

He made it very clear while saying, “With (General Growth) in financial distress, strip malls and regional retail stores will undoubtedly follow suit when they are unable to refinance, producing an unstoppable downward spiral until real estate values bottom out.” It is to be noted that General Growth is the second largest mall operator and hence its bankruptcy represents one of the biggest real estate failures in US history.

Nonetheless, in spite of that, the company has a better shot at surviving its current situation that others might, according to Mermelstein. “They are, in certain ways, immune to all of this because the retailers renting their space are more upscale and tend to be less affected by the economy,” he said. What will be the condition of smaller retail centers with mom-and-pop stores? As indicated by him, they are going to witness increasing vacancies. “The climate to refinance properties these days is creating quite a hardship,” he said. “A lot of commercial loans are coming up and there is only a certain amount of money available to refinance those loans. Banks, in many cases, will look at this as a credit risk. And the higher the risk, the less money there is to finance.”