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Commercial Real Estate’s Race To Maturity

Below is an interesting article about the looming problem of loan maturities in commercial real estate that will need to be dealt with in the next few years. 
 
By: Chris Macke
Chris Macke is a senior real estate strategist for the CoStar Group and a former vice president with GE Real Estate. He has 20 years experience in commercial real estate development, acquisition, leasing and financing.
 
 
 
As a native of Indiana, every Memorial Day my attention turns to the “Greatest Spectacle in Racing,” the Indianapolis 500.

However, as senior commercial real estatestrategist with CoStar Group, I have my eyes set on another race — the one between maturing commercial real estate loans and the prices of the underlying properties securing those loans. And in that race, commercial real estate has recently been issued a yellow flag.

In CoStar’s Commercial Repeat-Sale Index, which tracks pricing among commercial real estate properties, almost three out of every four properties that had been acquired between 2005 and 2007 and then resold in the first quarter of 2011 sold at a lower price. This is an ominous percentage considering that many of the “extend-and-pretend” loans are related to acquisitions made during the 2005-2007 period.

The idea behind extend-and-pretend was the following: Properties facing loan maturities and that have current values that are lower than the current loan balance would have their loan maturity dates extended, as long as the property owners are current on their payments. This was intended to extend the time for the properties to recover their values, enabling successful refinancing of those loans.

However, one result of these loan extensions is a concentration of these loans maturing over the next few years, rather than being dispersed over a longer period of time had they kept their original due dates.

The result is a steepening of what has been called the “loan maturity cliff.” In 2008, it was estimated that the United States would see $450 billion in 2011 loan maturities related to commercial real estate. Today that number is estimated at $900 billion. Each year that lenders continue this practice, this concentration risk increases.

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William Reiling – Member of the Minnesota Real Estate Hall of Fame

The Minnesota Real Estate Hall of Fame was established by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business to honor leaders in the local real estate community.  As we begin taking nominations for the 2011 Minnesota Real Estate Hall of Fame, we wanted to introduce you to the esteemed group of current Minnesota Hall of Fame members.  Meet William Reiling, 2010 Minnesota Real Estate Hall of Fame Inductee.

William Reiling
In the real estate industry, Mr. William Reiling is known for his energy, enthusiasm and integrity.  His early life as a poor farm kid has given him a unique perspective that is evident in his business dealings today. 

Temporarily leaving the world of commercial banking in 1973, Mr. Reiling became president and co-owner of Towle Real Estate Company.  Under his leadership, the firm posted solid and profitable growth throughout the 1970s and early 1980s.  During this time, Towle expanded its property management business outside of the Twin Cities to include offices in Tulsa, Cedar Rapids, Denver, Des Moines and Eau Claire.  With many companies expanding to multiple locations nationwide, Towle began to provide services over larger geographic areas.  To meet this need, the company founded American Realty Services Group with two other firms: F.C. Tucker in Indianapolis and Turley Martin in St. Louis.  This group eventually became known as Colliers International.  Continue Reading