Real Estate Expert Paints Bleak Picture of Housing Market
C. Daniel Clemente, Chairman and CEO of Clemente Development Co., Inc. painted a bleak picture of the US real estate market at the inaugural Arab Global Forum, “The Arab World in a New Global Context: Challenges, Choices and Opportunities,” at the Mandarin Oriental, Washington, DC, December 7-8, 2009.
Of the $1.4 trillion in loans maturing by December 2013, $770 billion are currently classified by Foresight Analytics as under water, Clemente observed, meaning that “today debt exceeds market value of the loan’s collateral.” A 10% national office vacancy rate, 25% decline in net effective rents, lower commercial real estate values, and lack of available credit will make repayment difficult. “The drop in market value translates to a loss to lenders of more than $500 billion.”
Clemente described the unsustainable, growing practice of “Extend and Pretend,” whereby lenders don’t foreclose on overleveraged building owners to avoid balance sheet markdowns, and the pressure being placed upon the Federal Deposit Insurance Corporation by such a practice. He stated that “lack of liquidity in the FDIC insurance fund has resulted in policy decisions that will keep the commercial real estate market frozen and only push the problem into the future.
“How aggressively regulators respond will determine how long the commercial real estate market remains frozen. I would suggest that as the US economy starts to recover and the FDIC fund becomes more solvent the policy will change again to strict enforcement and commercial real estate will become available at steeply discounted prices.”
Clemente is a nationally recognized developer, banker and attorney, currently managing a portfolio that focuses on the ongoing benefits of property ownership. He formed CDC Real Estate Opportunity Fund I in 2008 to take advantage of investment opportunities in income producing commercial real estate, predicting defaults would occur starting this year as loans closed between 2002 and 2007 matured amid significantly changed underwriting standards and little ready capital. Clemente expects that as banks finally recognize losses on commercial real estate loans, properties will come to market at more realistic prices. “Our Fund was formed to take advantage of exactly this situation. We are well capitalized and ready to move quickly as appropriately-priced properties become available.”
For the full text of Clemente’s remarks, go to http://clementedevelopment.com.
