ULI: Commercial real estate market will hit bottom in 2010

Pittsburgh Business Times - by Tim Schooley

When a commercial real estate forecast begins with slides of the Roadrunner being chased by Wylie Coyote, it’s not hard to see through to the bottom of the cartoon canyon to understand what the fall represents.

That was Charles DiRocco’s approach to presenting the Urban Land Institute’s report on the Emerging Trends in Real Estate for 2010 in a breakfast hosted by the ULI’s Pittsburgh chapter at the Rivers Club Wednesday morning.

With the residential real estate market bottoming out in 2009, DiRocco said that in 2010 the “commercial real estate is going to hit to bottom as well.

It was a road show DiRocco, Pittsburgh native who is one of the ULI’s principal researchers, has presented in cities throughout the country, serving as the messenger of what’s largely been a bad news market for commercial real estate everywhere.

DiRocco’s gallows approach didn’t sugar coat ongoing trends that suggest a business environment for commercial real estate he expects will be worse than the recession of the early 1990s. The ULI’s larger report expects real estate value declines will average more than 40 percent below previous highs of mid-2007.

With values sinking so much, DiRocco expects real estate development has largely ground to a halt for the new year as well as perhaps a few years to follow.

Richard Moody, a local economist who also participated in the breakfast discussion, emphasized that financing for any new development will remain difficult.

“If you want to see if a banker has a good sense of humor, go and ask him for a construction loan,” Moody said.

The Pittsburgh area has proven to be relatively well-positioned to withstand any fall out in commercial real estate, both men said.

DiRocco said Pittsburgh’s standing has improved over other metros in the past year by not seeing the precipitous drops in value experienced elsewhere. A panel discussion suggested that many late-cycle buyers of 2005 through 2007 could find themselves struggling with foreclosures and workouts given the burden they’ve taken with high sales prices, weakening occupancy and commercial mortgage-backed securities (CMBS) coming due.

Nick Matt, a managing director in the Pittsburgh office of HFF Inc., said it will be difficult for the banks to negotiate a wave of property falling back into their possession.

“Right now, the servicers are inundated,” he said, seeing the process as far more complicated than in the past due to the way commercial mortgage debt has been packaged into CMBS. “We’ve never been through this on the CMBS side.”


NAI Pittsburgh Commercial is a Pittsburgh proud locally owned and operated company. To see some of the investment and development opportunities available in the Pittsburgh region CLICK HERE