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Prudential Real Estate Investors: Commercial Mortgage Market Will Tank in 2011

Jan 25, 2011

The commercial mortgage market will shrink for another year, bottoming out at about $2.9 trillion in late 2011, and then begin to rise in 2012 with volume reaching about $3.3 trillion by 2015, according to new research issued by Prudential Real Estate Investors (PREI), the real estate investment management business of Prudential Financial Inc. “The availability of debt is a critical element of the commercial real estate market. Closely monitoring debt allows us to gauge the health of the market and to plan strategy accordingly,” said Jack Taylor, managing director at PREI. “As commercial mortgage volume nears the bottom of the current cycle, we will begin to see activity pick up.” The PREI report “Deleveraging the Commercial Mortgage Market: How Much Further to Go?” bases its findings on a model that calculates the ratio of commercial mortgages as a share of gross domestic product. Based on this model, the commercial mortgage market will shrink through the fourth quarter of 2011, dipping to $2.9 trillion from its $3.4 trillion peak in the first quarter of 2009, a cumulative drop of about 14 percent. A similar pattern occurred in the 1990s, when the ratio of commercial mortgages as a share of GDP fell for three years after the absolute size of the market was growing. Back then, the banking crisis was mostly limited to the commercial real estate market. This time, the crisis affected other sectors, notably the residential sector. Also, the commercial sector’s growing connection to the capital markets should make the current crisis steeper, yet faster to resolve than in the 1990s, according to the report. For more information, visit www.prei.com.
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