Commercial Real Estate Debt Declines, ICSC Lobbies For Commercial Tax Incentives To Address This
March 18th, 2011
Commercial mortgage debt fell by $12.1 billion during the fourth quarter of 2010 according to data released today by the Mortgage Bankers Association (MBA)[1]. While this is the fifth straight quarter that the debt level has fallen, it is the smallest amount that it has fallen since the third quarter of 2009, indicating that lenders may be slowly moving back into the lending market. Analysts predict that debt levels will continue to fall, however, as outsized loans made in 2006 and 2007 are worked out over the course of the year, since loan workouts tend to shrink debt load rather than grow it.
The International Council of Shopping Centers (ICSC), however, hopes to help lenders feel more comfortable about growing their debt load with a new tax incentive, HR 1147 or “The Community Recovery and Enhancement Act”[2]. ICSC believes that this carefully designed commercial real estate tax incentive program, which requires 80 percent of new debt to be used to reduce the outstanding balance of the commercial loan while the rest goes toward energy efficiency, and leaseholder improvements, could “jump-start reinvestment in commercial real estate.” In this program, new investments would qualify for 50 percent bonus depreciation without regard to passive loss limitations and lenders would benefit from lower loan-to-value ratios and improved debt coverage ratios.
Given that maturing commercial mortgages are going to rise for several more years, presenting banks with serious issues as they deal with loans that must be refinanced or the properties – now worth far less than the debt – repossessed, many experts believe that a program like the one being put forward by ICSC could help lenders and investors reactivate the commercial real estate market. Critics, however, cite the artificial boom in the residential market brought on by tax incentives that many analysts agree ultimately slowed the market’s recovery.
Do you think that this declining debt level means that the commercial real estate market is working itself out, or does it need help from tax incentive programs?
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[1] http://blogs.wsj.com/developments/2011/03/17/commercial-real-estate-debt-levels-fall-again/
[2] http://baltimorerealestate.citybizlist.com/5/2011/3/17/ICSC-Lobbying-for-HR-1147.aspx
March 19th, 2011 at 9:23 PM
Declining debt levels tells me there’s a tremendous amount of private money buying up all the under-non performing assets.
March 21st, 2011 at 8:46 AM
Commercial Real Estate Debt Declines, I think this is CRAP every week it changes depending on who the reporting agency is but this does not include any shadow inventory or any other creative bookkeeping entries or not. And besides nothing has significant has happened in the industry to change.
March 21st, 2011 at 11:46 AM
“Declining Debt Level” is as ambiguous as the term “Bait” when talking Fishing! Is it declining as a result of defaults, foreclosures, buyouts, refinancing or owners just paying off their debts, closing the strips and othr small business centers?