Debt markets, while reportedly back "from the brink of historic collapse," remain highly dysfunctional. Seventy-one percent of respondents said credit availability is worse today than a year ago, while 41 percent characterized it as "much worse." Not surprisingly, given the degree of current weakness, a majority of respondents (62 percent) expect credit conditions to be at least "somewhat better" by this time next year.
"The vast challenges facing commercial real estate today are far from over. Continued comprehensive policy action is called for to bring liquidity back to the market and avoid a cascade of negative repercussions for the economy," said Roundtable President and CEO Jeffrey DeBoer. "A sick commercial real estate sector means less revenue for local governments; layoffs and cutbacks for construction, hotel and retail workers; and an even smaller retirement nest egg for millions of investors."
The new overall sentiment index reading of 49 remains significantly below the ideal of 100 -- a reflection of the extreme weakness in current market conditions. The overall index is measured on a scale of 1 to 100 and is based on an average of the "Current Conditions" and "Future Conditions" indices. To attain an overall index of 100, all survey respondents would have to answer that conditions are "much better" today compared to one year ago, and will also be "much better" 12 months from now.
The Current Conditions index now stands at 36 and the Future Conditions index at 62. The Roundtable cautioned that the slight increase in the indices should not be taken as a sign of "improvement" in commercial real estate markets, but rather that the sense of a free fall in the markets had subsided. As one survey respondent said, "I felt until recently like we were running in quicksand, but we're not doing that anymore."
In his July 9 testimony before the congressional Joint Economic Committee, DeBoer urged a number of policy steps including extending the Term Asset-Backed Lending Facility (TALF) until year-end 2010; creating a federal program to facilitate origination of new loans (potentially, along the lines of a loan guarantee model cited by Fed Chairman Ben Bernanke); and temporarily easing tax restrictions governing commercial real estate loans that have been securitized, so that borrowers and servicers can begin discussing potential work-outs before the point of default. [Visit www.rer.org for the testimony and the full set of Roundtable recommendations in this area.]
Bernanke on July 22 signaled that further governmental action might be appropriate to support the commercial real estate debt market -- including a possible extension of TALF and some kind of federal guarantee program for commercial mortgages.
The quarterly Sentiment Survey seeks to capture feedback from a broad range of real estate industry segments, asset classes, ownership vehicles and capital structures, including owners and asset managers, financial services firms and operators. It is administered for The Roundtable by FPL Advisory Group of Chicago. A PDF of the entire report is available online at www.rer.org. The next set of survey results, covering Q4 2009, will be released in October.