Commercial real estate can bring in lot more pain for financials and great investment-Robin Trehan

Sept. 11, 2009 - PRLog -- “Fool me once, shame on you. Fool me twice, shame on me.” This maxim warns against failing to learn from one’s mistakes. When it comes to the commercial real estate sector, financials may be getting fooled again.

Twenty years ago the infamous saving and loan crisis made obvious the perils of imprudent lending and investment in commercial real estate. While there were many factors that contributed to the crisis, the failure of many commercial real estate ventures was definitely one of the primary causes. At one point, nearly six per cent of commercial real estate loans were in delinquency.

Fast forward to current times and it looks like the same thing is happening all over again. Although the media and the general public have been focused mostly on the residential housing market, things are equally dire in the commercial real estate sector. Malls stand vacant. Office buildings lose existing tenants and search in vain for new ones. Once-busy hotels see fewer and fewer visitors as budget-minded consumers opt for “staycations” in the face of the recession.

The landscape is littered with half-finished developments and deserted apartment complexes. Many financial companies and banks are feeling the pinch.

Consider the opinion of the Chief Operating Office of J.P. Morgan Chase & Co., Jamie Dimon. "Commercial real estate in the United States of America is going to get worse consistently over the next several quarters."

Unfortunately, this pessimistic viewpoint seems justified. One doesn’t have to be an economist to see the obvious interrelations between every sector of the country’s economy. Each is intimately tied to the others and during an economic downturn, this creates a vicious circle.

Because they are so heavily invested in the success of the commercial real estate sector, it’s very likely things will get worse for banks before they get better. Existing loans will continue to default, and banks are obviously not going to throw good money after bad by making new ones – the underwriting of such loans has become much more stringent.

Banks have little alternative but to stay the course and hope along with the rest of America that economic recovery comes sooner rather than later. One of the silver linings of the present crisis is the fact, the assets are cheaper than ever before and it gives investors, private equity groups to get something for pennies to dollar.

Right investment in this market has tremendous upside, as the saying goes there are no bad assets, always bad pricing. The story is all about which side of the table we are! Real Estate and Banks are cheap in the present market and right move can have tremendous ROI.
Robin Trehan is managing director at the private equity firm of www.businesscreditfunding.com