Commercial Property ‘Long Way’ From Rebound, GE’s Pressman Says

Nov. 6 (Bloomberg) -- The U.S. commercial property market is far from recovery and needs job growth, sustained low interest rates and further government support, said GE Capital Real Estate Chief Executive Officer Ronald Pressman.

“We’re a long way from where we’d like to be,” Pressman said at the Urban Land Institute’s annual meeting in San Francisco yesterday. “The stakes are very big here.”

Defaults and late payments on property loans sold as commercial mortgage-backed securities jumped more than fivefold to 4.52 percent of the total in the third quarter from a year earlier, New York-based real estate researcher Reis Inc. said. About $26.6 billion of CMBS loans were 60 days or more past due.

Commercial real estate won’t stop falling for 18 to 24 months after the economy bottoms out, as the full effect of the recession hits landlords, Pressman said in an interview at the San Francisco event. The unemployment rate needs to drop to 5 percent to 6 percent before the property market rebounds, according to his presentation. Joblessness rose to 9.8 percent in September, the highest since 1983.

About $22 billion worth of transactions will be completed this year, or 5 percent of the 2007 market peak, Roy March, CEO of commercial brokerage Eastdil Secured, said at the same event. Deals are down 74 percent from 2008 for offices, 72 percent for apartment buildings and 60 percent for retail properties, he said.

Stores, apartment buildings and warehouses in the U.S. will set vacancy records before a recovery takes hold, according to a forecast by CB Richard Ellis Group Inc. Office vacancies will fall just short of the record set in 1991, it said.

Real estate was GE Capital’s only unit to record a third- quarter loss as the company scaled back lending and transactions.

“We think we’re early in the game as far as real estate markets reaching stability,” Pressman said.

The government’s Term Asset-Backed Securities Loan Facility program, or TALF, has been a “strong, but not really effective” effort to jumpstart credit markets, Pressman said. The $787 billion stimulus package has helped create jobs.

ULI, based in Washington, is a global real estate organization with almost 34,000 members including heads of property firms, developers, bankers, architects, city planners and researchers.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net.

To contact the editor responsible for this story: Alan Mirabella at amirabella@bloomberg.net.