The metro Phoenix Commercial Real Estate market leads the nation in commercial mortgage backed securities defaults. At least we are leading the nation in something right? If we include running minorities out of town, we are probably leading in 2 categories. Both of which are embarassing. Trepp LLC a NY based research firm gave us the “honor” of leading the CMBS default category. The default rate is 16.5%.
This does not mean the sky is falling or that a lot more Commercial Foreclosure activity lies ahead. The opportunity as it has been all along is farther up the food chain. In the note buying department or short sale department. Purchasing the notes depend on how they are packaged. The larger investors (read billionairres) buying over 100 million in non performing notes were looking at packages usually spread across multiple states. They were not given the opportunity to just pick and choose the best of the bunch. More likely than not the owner of the notes throws in “dog states” in the package to divest themselves if possible, not only of states that have had high growth historically (AZ, NV, FL) but the former also. No offense Michigan, but that dog state usually means you or one of your rust belt neighbors.
If an investor is allowed to choose only notes in the exact city or region they want, it’s usually after they have already been purchased once. Not always, but many times the deepest pockets have already bought the largest packages and are now splitting them up regionally or by state.
That doesn’t mean we won’t have a larger collapse if something happens to the capital markets again like a double dip. But it isn’t likely. A recovery is very hard to stop. It may slow but to reverse it is not easy. The local multi family market has started to stabilize and that happens when there is a great deal of competition for what is available, which means the clock has swung down to 6 O’Clock and is most likely on its way up. Albeit that may be extremely slow and that clock may have a very wide bottom. What we should see next year is increased “main street” CRE activity and a farther upswing in the market, while the financial world divests itself of these non performing CMBS.
Usually when this sort of news hits the news market, its old news, and the underlying data already points in another direction. As the old adage goes, be greedy when everyone is fearful, and fearful when everyone is greedy. Q4 2008, Q1 2009 was the real opportunity for the “whales” out there as far as lack of competition and ability to buy with cash. That abated over 2009 a lot faster than anyone imagined.
The current opportunity is to buy the products available while you can. 17% economic vacancies (2 month rental abatements) with 10%+ vacancies leaves a lot of room for improvement of a product even at a lower cap rate. Especially when you consider the 30%+ decay in rents we have seen. If you are too greedy, you will regret buying too little.
If you have any questions about the current Phoenix Commercial Real Estate market feel free to contact me at (602) 692-4288 or by e-mail at Marc@PhoenixCommercialRealEstate.com.
Marc Brodeur BS, DC
Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
Copyright © 2010 by Marc Brodeur- All Rights Reserved – Metro Phoenix Leads Nation in Commercial Mortgage Backed Securities Defaults
