When the commercial real estate brokerage Jones Lang Lasalle issued its research overview on the Boston economy last week, it pulled no punches. There, in large print headlining paragraphs of explanation, was a stark assessment: “Greater Boston’s Resistance To Global Downturn Is Futile.”
It is indeed true that Boston has shown no immunity to the financial plague ravaging our nation. But it is not as diseased as is much of the country. Yes, unemployment is rising, and yes, some business sectors – especially financial services – are being particularly punished. Yet some of the region’s core economic drivers – education, health care and biotechnology – are still expanding. The growth rates aren’t huge – usually as little as 2 or 3 percent – but they aren’t negative.
That means that Boston will likely weather this economic tumult better than other parts of the country. On a national basis, however, and certainly to some extent in Massachusetts, there is precious little good happening in the commercial real estate markets.
Even the National Association of Realtors acknowledges the severity of the problem. NAR asserts that commercial real estate activity will be severely plagued this year by the credit crunch and economic downturn. “Commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next six to nine months,” says NAR.
Its Society of Industrial and Office Realtors Index has declined for eight consecutive quarters and is 58.5 percentage points below the 100 point criteria that represents a balanced marketplace.
Federal Guidance
Which brings up the question of stimulus packages. In all of the hullabaloo over bailing out banks, propping up automobile companies, deleveraging life insurance companies and extending a helping hand to overextended homeowners, there is precious little discussion about getting the flow of credit going again for significant commercial real estate activity.
The market for CMBS (commercial mortgage backed securities) collapsed along with the private secondary market for home loans. But commercial real estate loans aren’t usually written with 30-year time horizons. They most frequently come due at between seven to 10 years. A lot of commercial properties in Boston and elsewhere that were bought during the heydays of 2002, 2003 and 2004 are coming due for refinance. Only there are precious few options for those building owners.
While unfreezing the credit markets for commercial real estate might help spur some new construction – and thus help move the economy along with new jobs – its immediate impact will be on avoiding a new wave of costly and disheartening mortgage defaults, adding hundreds of billions of dollars in bad debt onto the books of banks and insurance companies.
In Boston, the built-up nature of the city may have spared it the worst of what’s to come. With, relatively little new construction completed here in the past five years, Jones Lang estimates that sublease activity here may actually near, if not equal its peaks seen in 2002 and 2003. Certainly, the region’s banks seem to recognize the long-term viability of the commercial real estate market. They are avidly in the market to make such loans.
But there is no local institution big enough to fund such projects as the Filene’s tower, or Copley Place. And there is no national market now willing to buy debt based on commercial real estate growth.
While help for homeowners is important, this nation must reinvigorate its commercial interests. That includes finding ways to create new commercial real estate, but also warding off a catastrophic wave of new commercial foreclosures, brought about solely because of a lack of available credit.
