The commercial real estate market will get worse before it gets better. That’s at least what one of the big players in this market seemed to be saying during his company’s conference call earlier today.
Jay Sugarman, chairman and CEO of iStar Financial, a finance company that focuses on commercial real estate, was asked by an analyst during an earnings conference call for his thoughts on the state of commercial real estate markets. Sugarman noted that the top 10% of the market in terms of asset quality is seeing interest from domestic and offshore buyers. But then here’s what he had to say about the rest of the market:
“But there’s a whole slew of assets I would describe as not in the top 10% of that. That is very poor pricing, little financing – that’s the part of the market I think – certainly the Fed is concerned about, the FDIC is concerned about where is that market going to settle. And I would tell you fundamentals continue to deteriorate in a lot of those asset types and a lot of those secondary and tertiary markets, probably even more than the 40% number that we’ve seen turn around.”
So, broadly speaking, the 40% decline in commercial real estate stands to get worse. When will it get better? In Sugarman’s own words again: ” The market really has not healed sufficiently to know where the bottom is for those. But if the overall macro environment continues on a steady course, I think over the next 12 to 18 months you’ll at least know where the bottom is. I’m not sure we’ll have taken enough pain to stabilize out the sector, but it’s becoming pretty clear in our minds that if there’s not a macroeconomic shock in the next 12 to 18 months, we’re going to see where the bottom is.”
His comments were from a transcript provided by CallStreet, a unit of FactSet.
Meanwhile, the cratering commercial real estate market continued to hit iStar hard – it reported a net loss of $251.3 million on revenues of $210.2 million. It continues to get hurt by non-performing loans – 85 of its 260 commercial real estate loans were classified as non-performing ($4.4 billion) or 42% of total managed loans.